An Impact of DOL and DFL on Firm Performance of Bata Pakistan Limited: An Empirical Study

Abstract

Liquidity has a key importance in the financial management of the firm. This study checks the impact of leverage on firm performance. To check this the Bata Pakistan Limited has taken as case study. In this present research study, an attempt is made to study the relationship between leverage and profitability in Bata Pakistan Limited. The secondary data is collected to check the relation between the 2 variables. The financial statements of Bata Pakistan Limited have been collected over a period of 7 years (2012-13 to 2020-21). The data collected is analyzed by the percentages, averages, ratios and correlation analysis tools reveals that the research evidence of the study indicates that, that degree of operating leverage is statistically significant positive correlation with the ROA. It is observed that degree of financial leverage is positively correlated with the ROA. It means that degree of financial leverage of Bata Pakistan was not at optimum level. It is suggested to Bata to revise its capital structure which should include the optimum blend of equity and borrowed funds so that it has positive impact on Return on Assets. More over degree of combined leverage is positively correlated with ROA of Bata Pakistan. The financial performance of the Bata Pakistan is satisfactory. The Bata Pakistan is employing less debt funds so it can’t get the financial leverage benefits. Therefore, the Bata Pakistan has to revise its capital structure so that financial leverage will help to maximize the shareholders wealth.