Abstract
The textile sector in Pakistan is the largest manufacturing industry and recognizable model of resistance economy. Over centuries, textile sector has been the country’s backbone making available sources of occupation and export returns. Generally, financial leverage is the organizational capability of using borrowed money. It can be described as a fraction, to which a company uses fixed income securities such as debt and equity. The objective of the current study is measuring the impact of financial leverage on firm’s financial condition. It is essential to know whether a positive or negative relationship exists between two terms, financial leverage and financial performance of the textile industry; evidence from the listed firms of Pakistani textile industry from 2007-2016. Pooled regression analysis technique shows that there is positive relationship between financial leverage and financial performance (Returns on Assets, Sales Growth and Net Profit Margin). On the other hand, negative relationship exists between Return on Equity ratio. It is confirmed that the organizations have more profitability, might enhance the financial performance having more levels of financial leverage. This study also gives evidence by estimating different facts. It exposes that the main elements of the textile industry in Pakistan enhance their financial performance by employing the financial leverage strategy and can attain a sustainable future growth by making decisions about the selection of their optimum capital structure.
Highlights
Textile is a term come from the “texture” which is a Latin word that means, “To weave”
The main objective of this paper is to examine the relationship between financial leverage and financial performance by employing a sample of the Pakistani textile firms listed on the Pakistan Stock Exchange for the period 2007 to 2016
The financial leverage is the degree to which an organization uses the fixed-income through various securities such as the equities and debts
Summary
Textile is a term come from the “texture” which is a Latin word that means, “To weave”. A cloth is manufacture by weaving or knitting forms a fabric. The textile industry is primarily concerned with the production of yarn, cloth and ensuing design or manufacturing of clothes and their distribution. The raw material may be natural or synthetic using products of the chemical industry. The growth of the cotton production and development of textile industry has been remarkable in Pakistan since 1947. At that time there were only six spinning factories in Pakistan, which has grown up to 503. The import tariff on cotton factories was reduced from 85 percent to 50 percent in 1985 and 20 percent in 1988. In 1988, the restrictions on renewal and expansion of spinning and weaving factories were removed too
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