Abstract

Purpose: The main aim of the study is to examine the performance of selected pharmaceutical companies in India based on the Degree Of Operating Leverage, Degree Of Financial Leverage, Degree Of Combined Leverage, and Cost Of Capital.
 Approach/Methodology/Design: Five pharmaceutical companies were randomly selected, and the annual reports and financial statements of these companies were analyzed. The analysis methods involved Degree Of Operating Leverage, Degree Of Financial Leverage, Degree Of Combined Leverage, and Cost Of Capital. ANOVA test was also employed to test hypotheses. The study is made for five years from 2013-14 to 2017-18.
 Findings: The results of the study reveal that there is a significant difference in the (means) variables in terms of leverage (operating, finance, and combined) and cost of capital. All leverages are different to each other and the cost of capital. The analysis reveals that Sun Pharma performed well during the study period, whereas Lupin underperformed in all aspects.
 Practical Implications: The leverage and cost of capital are very important components for deciding whether to invest or not in pharmaceutical companies. The present study highlights the financial performances and growth of the selected pharmaceutical companies.
 Originality/value: The results of the paper give certain indicators about the performance of the selected companies. These indicators can be used to inform an investment decision.

Highlights

  • Leverage and cost of capital are the very important components for the evaluation and effective utilization of the equity share

  • The present study aimed at measuring the impact of leverage on the cost of capital of selected pharmaceutical companies in India

  • Five pharmaceutical companies were selected and the annual reports of these companies were analyzed using the degree of operating leverage, degree of financial leverage, degree of combined leverage, and cost of capital

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Summary

Introduction

Leverage and cost of capital are the very important components for the evaluation and effective utilization of the equity share. Operating leverage shows the operating cost efficiency of every firm and its fixed cost. Financial leverage is concerned with the rising of the funds from the source for which a firm has to bear fixed charges. It refers to fixed costs like interest expenses and other fixed costs. Financial leverage is directly associated with financial risk. The financial decision taken based on the capital structure provides the proportion of the firm how much debt is used, Equity, Preference share, etc

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