Abstract
This paper focuses on investigating the effect of the Liquidity, leverage, growth of firm, market price of share, size of firm and GDP on the profitability of the automobile sector of Pakistan. To proceed with this, the capital structure of 6 firms has been analyzed by adopting an econometric framework over a period of six years. We used pooled regression in order to check the reliability of our model and found that the, liquidity, market price of share, size of firm have significantly positive impact on firms profitability and DFL, growth rate of firm have significantly negative impact on firms profitability. However the study is unable to establish any significant relation between profitability of firm and the degree of operating leverage. These results might provide a useful guide to the automobiles firm’s managers in designing the strategies in a way which may boost profit.
I. Introduction
Operating leverage is a measure of the extent to which fixed operating costs is being used in an organization. The degree of operating leverages higher for those companies that have a higher proportion of fixed operating costs as compared to variable operating costs. This type of firm uses more fixed assets in its operation. Conversely, operating leverage is lower in companies that have a lower proportion of fixed operating costs in relation to variable operating costs. Financial leverage arises when a firm decides to finance a part of its assets by taking on debt rather than financing all its assets through equity. The greater the proportion of debt in the financing mix, the higher is the financial leverage. Firm do this when they are unable to raise enough capital by issuing shares in the equity market to meet their business needs.
Firms w ...