The Impact of Financial Leverage on Firms Performance

Authors

  • Naila Mehboob 1MS Scholar Department of Management Finance at International Islamic University of Islamabad
  • Behishat Zain MS Scholar Department of Management Finance at Air University of Islamabad

Abstract

This study examines the correlation between leverage and sales performance. Leverage is considered a crucial element in the realm of corporate finance, where a company's growth performance is evaluated by employing the logarithmic representation of its sales revenue. In order to ascertain the validity of our research findings, we took into account the fact that Pakistan possesses a significant number of enterprises, amounting to a total of 18,017. A comprehensive regression model was employed to ensure the model's impartiality and reliability, while also including all significant outcomes. The outcomes of this study are deemed noteworthy and reliable due to several compelling factors. There exists a notable negative correlation between leverage and sales performance, necessitating active engagement at every level of influence. This hyperlink is especially vital in relation to sales effectiveness. The decrease in sales income by 4% can be attributed to a simultaneous increase in the debt ratio by 10%. The debt ratio is calculated by dividing total commitments by total assets. Contrary to the commonly accepted notion that leverage has a substantial and contradictory influence on an organization's achievement, it is glaringly evident that loans are being utilised in a reckless manner. A successful leverage policy indicates that the business's performance has enhanced, rather than deteriorated. Considering this, the discoveries given in this study provoke significant inquiries.
Keywords: Impact Financial Leverage, Firms Performance

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Published

2023-06-23

How to Cite

Naila Mehboob, & Behishat Zain. (2023). The Impact of Financial Leverage on Firms Performance. Pakistan Journal of Multidisciplinary, 1(1), 32–45. Retrieved from http://pjm.com.pk/index.php/Journal/article/view/27