IMPACT OF FINANCIAL RISK ON PROFITABILITY: A COMPARATIVE STUDY OF MANUFACTURING AND SERVICES SECTORS OF PAKISTAN

Abstract

This study has examined the impact of financial risk on profitability in the manufacturing sector and services sector from 2010 to 2019. This study has used profitability as a dependent variable, the profitability of the manufacturing sector and services sector has been measured with the help of ROA and ROE. Whereas time interest earned, debt to equity ratio, liquidity, total assets, and age have been selected as independent variables. The results show that time interest earned has a positive and significant impact on the profitability of the manufacturing sector and services when profitability has been measured with the help of ROA. But time interest earned has an insignificant impact on the profitability of the manufacturing sector and services when profitability has been measured with ROE. The results show debt to the equity ratio has a positive and significant impact on the profitability (ROA and ROE) of the manufacturing sector. But the debt to equity ratio has a negative and significant impact on the profitability (ROA and ROE) of the services sector. The outcomes show that age has an insignificant impact on the profitability (ROA and ROE) of the manufacturing sector. The results show that age has an insignificant impact on the profitability of the services sector when profitability has been measured with ROA, but age has a positive and significant impact on the profitability of the services sector when profitability has been measured with the help of ROE. The results explain that liquidity has a positive and significant impact on profitability (ROA and ROE) of the manufacturing sector and services sector. The results show that total asset has an insignificant impact on the profitability of the manufacturing sector when profitability has been measured with the help of ROA. But total assets have a positive and significant impact on the profitability of the manufacturing sector when profitability has been measured with the help of ROE.