Impact of Capital Structure on Profitability in Pharmaceutical Industry of Pakistan.

Mutahir Bilal MCE-12147 1
Impact of Capital Structure on Profitability in Pharmaceutical Industry of
Pakistan.
A Thesis Submitted to Superior University, Lahore, in Partial Fulfillment of the
Requirement of Degree of Master in Commerce, superior University Lahore,
Pakistan
BY
Mutahir Bilal
MCE-12147
2013

Impact of Capital Structure on Profitability in Pharmaceutical Industry of
Pakistan.
BY
Mutahir Bilal
MCE-12147
Approved By
____________________________
Supervisor
____________________________
External Examiner
____________________________
Chairman

DECLARATION OF ORIGINALITY
I, Mutahir bilal, declare that this thesis is my own work and has not been
submitted in any form for another degree or diploma at any university or other
institute of tertiary education. Information derived from the published and
unpublished work of others has been acknowledged in the text and a list of references
is given in the bibliography.

DEDICATION
I dedicate my work to my parents who devoted their lives and resources for
my disciplined qualifications. I specially dedicate this to my mother and offer thanks
to her for her love, sincerity, prayers and mellifluous affections which hearten me to
achieve success in every sphere of my life and without whose encouragement and
moral support, the present study would have been a mere dream.

ACKNOWLEDGEMENT
I would like to take this opportunity to first and foremost thank God for being
my strength and guide in the writing of this thesis. Without Him, I would not had the
wisdom or the physical ability to do so.
I express my gratitude to my thesis advisor Miss KHANSA for devoting much
time to reading my work over and over again. Her special interest and knowledge in
issues related to pharmaceutical sector enabled her to give me the right guidance and
also provided me with much needed motivation.
I also thank my reader Nadia Izhar for taking the time to help me in finding
the necessary literature and incorporating it into the writing of this thesis. From her I
have learned the importance of producing a good piece of work and putting into it the
very best that you have.
I thank my parents for always being supportive of my education. I also take
this opportunity to acknowledge everyone in my large extended family.

ABSTRACT
The intent of this research is to determine and examine the nature of
relationship that exists between capital structure and profitability in pharmaceutical
industry in Pakistan. In view of the fact that this study is quantitative in nature and
this area is exceedingly under researched, therefore present study use quantitative
methodology. For this purpose 10 companies data of 3 years is collected to determine
the relation between capital structure (short term assets, long term assets, short term
liability and long term liability) and profitability (return on assets and return on
equity). Companies are listed at Karachi stock exchange. Finding of the study show
that there is non significant relationship between capital structure and profitability.
In view of the fact that not a large level of studies has been conducted which
analyzes capital structure and profitability in Pakistani pharmaceutical industry,
therefore this study is expected to contribute to the literature. Future more, this study
will prove to be the basis for the future research in this area.
Keywords: short term assets, long term assets, short term liability, long term liability,
return on assets, return on equity.

TABLE OF CONTENTS
Declaration of Originality ..........................................................................................3
Dedication ..................................................................................................................4
Acknowledgement......................................................................................................5
Abstract ......................................................................................................................6
CHAPTER 1.............................................................................................................12
1.1 Introduction ....................................................................................................12
1.2 Purpose Statmnet............................................................................................14
1.3 Significance of Study......................................................................................15
1.4 Objective of Study..........................................................................................16
1.5 Research Question and Hypothesis ................................................................16
1.5.1 Research Question................................................................................16
1.5.2 Hypothesis ...........................................................................................16
1.6 Term Definitions.............................................................................................18
Capital Structure.....................................................................................18
Profitablity..............................................................................................18
Long Term Assets..................................................................................18
Short Term Assets .................................................................................18
Long Term Liability ..............................................................................18
Short Term Liability..............................................................................19
Return on Equity.....................................................................................19
Return on Assets.....................................................................................19
1.7 Conceptual Framework...................................................................................20
CHAPTER 2.............................................................................................................21
2.1 Literature review.............................................................................................21
CHAPTER 3.............................................................................................................30
3.1 Research Paradigm .........................................................................................30
3.2 Research Approach.........................................................................................31
3.3 Source of Data ................................................................................................33
3.4 Population and Sample...................................................................................34
3.5 Methodology...................................................................................................34
CHAPTER4..............................................................................................................37
4.1 Descriptive Analysis.......................................................................................37
4.1.1 Descriptive Analysis.........................................................................37
4.1.2 Descriptive Analysis.........................................................................37
4.2 Correlation......................................................................................................52

4.2.1 Correlation.........................................................................................52
4.2.2 Correlation.........................................................................................52
4.2.3 Correlation.........................................................................................53
4.2.4 Correlation.........................................................................................53
4.2.5 Correlation.........................................................................................54
4.2.6 Correlation.........................................................................................54
4.2.7 Correlation.........................................................................................55
4.2.8 Correlation.........................................................................................55
4.3 Regression ......................................................................................................56
4.3.1 Regression .........................................................................................56
4.3.2 Regression ........................................................................................57
4.3.3 Regression ........................................................................................58
4.3.4 Regression ........................................................................................59
4.3.5 Regression ........................................................................................60
4.3.6 Regression ........................................................................................61
4.3.7 Regression ........................................................................................62
4.3.8 Regression ........................................................................................63
CHAPTER 5.............................................................................................................65
5.1 Discussion.......................................................................................................65
5.2 Conclusion......................................................................................................69
5.3 Recommendation............................................................................................70
5.4 Future Research ..............................................................................................71
5.5 Ethical Consideration .....................................................................................71
References ................................................................................................................72
Appendix..................................................................................................................74

LIST OF TABLES
TABLE 1......................................................................................................................................... 34
TABLE 2......................................................................................................................................... 37
TABLE 3......................................................................................................................................... 37
TABLE 4......................................................................................................................................... 52
TABLE 5......................................................................................................................................... 52
TABLE 6......................................................................................................................................... 53
TABLE 7......................................................................................................................................... 53
TABLE 8......................................................................................................................................... 54
TABLE 9......................................................................................................................................... 54
TABLE 10....................................................................................................................................... 55
TABLE 11....................................................................................................................................... 55
TABLE 12....................................................................................................................................... 56
TABLE 13....................................................................................................................................... 56
TABLE 14....................................................................................................................................... 56
TABLE 15....................................................................................................................................... 56
TABLE 16....................................................................................................................................... 57
TABLE 17....................................................................................................................................... 57
TABLE 18....................................................................................................................................... 57
TABLE 19....................................................................................................................................... 58
TABLE 20....................................................................................................................................... 58
TABLE 21....................................................................................................................................... 58
TABLE 22....................................................................................................................................... 58
TABLE 23....................................................................................................................................... 59
TABLE 24....................................................................................................................................... 59
TABLE 25....................................................................................................................................... 59
TABLE 26....................................................................................................................................... 59
TABLE 27....................................................................................................................................... 60
TABLE 28....................................................................................................................................... 60
TABLE 29....................................................................................................................................... 60
TABLE 30....................................................................................................................................... 60
TABLE 31....................................................................................................................................... 61
TABLE 32....................................................................................................................................... 61

TABLE 33....................................................................................................................................... 61
TABLE 34....................................................................................................................................... 62
TABLE 35....................................................................................................................................... 62
TABLE 36....................................................................................................................................... 62
TABLE 37....................................................................................................................................... 63
TABLE 38....................................................................................................................................... 63
TABLE 39....................................................................................................................................... 63
TABLE 40....................................................................................................................................... 64
TABLE 41....................................................................................................................................... 64
TABLE 42....................................................................................................................................... 64

LIST OF FIGURES
FIGURE 1........................................................................................................................................ 20
FIGURE 2........................................................................................................................................ 20
FIGURE 3........................................................................................................................................ 38
FIGURE 5........................................................................................................................................ 39
FIGURE 4........................................................................................................................................ 40
FIGURE 6........................................................................................................................................ 41
FIGURE 7........................................................................................................................................ 42
FIGURE 8........................................................................................................................................ 43
FIGURE 9........................................................................................................................................ 44
FIGURE 10...................................................................................................................................... 45
FIGURE 11...................................................................................................................................... 46
FIGURE 12...................................................................................................................................... 47
FIGURE 13...................................................................................................................................... 48
FIGURE 14...................................................................................................................................... 49
FIGURE 15...................................................................................................................................... 50
FIGURE 16...................................................................................................................................... 51

CHAPTER NO 1
INTRODUCTION
1.1 Introduction
According to a journal (vol-1No. June 2011) on pharmaceutical industry of
Pakistan ,the pharmaceutical industry is very active and demanding. About 600
Pharmaceutical companies are working in Pakistan. Out of these corporations 386 are
in commission units. A well-built and self dependent National Pharmaceutical
Industry is not only playing a explicit role in supporting and encouraging growth in
the central pasture of medicine within the country, but is also locate a good manner to
take on the international markets. All the pharmaceutical companies should look into
these figures and try to discover the sectors for not performing up to the mark in
pharmaceutical industry. Moreover, it is also a prospect for the corporation to take
advantage of on this situation and attempt to generate trade from the pharmaceutical
business. Pharmaceutical Industry is one of the foremost manufacturing industries in
Pakistan providing employment to thousands of people openly and ultimately.
The Pakistan Pharmaceutical Industry assembles around 70% of the country's
demand of refined medicine. The domestic pharmaceutical market, in term of share
market is approximately having equally divided between the Nationals and the
Multinationals (Anne et al 2005). The significance of pharmaceuticals sold in 2007
exceeded $1.4, which associate to per capita spending of less than $ 10 per year and
an assessment of medicines sold is predictable to exceed $2.3 by 2012.
Capital structure and profitability plays a major part to the achievement of any
operation in the pharmaceutical sector of Pakistan. For the accomplishment of my
research estimation I select the sector of pharmaceutical industry of Pakistan. It aimed
to provide international verification mode in which capital structure is managed the
significant impact on the profitability of pharmaceutical firms. This study explores the
variables of Short term liabilities, Long term liabilities, short term assets, long term
assets. Pakistan Pharmaceutical industry is mounting at a very rapid velocity and
contributing to the general economy (Ford Endexy , 2004). This particular study is
deliberate to evaluate the performance of the Pharmaceutical industry in the Pakistan.
The aim is to put together existing information and to make all relevant information
on the pharmaceuticals sector and conduct a complete assessment on this sector.
According to (Kobori, 2002) Pakistan has a growing and an energetic
Pharmaceutical Industry. From Pakistan’s 600 pharmaceutical manufacturing units,
which also include those managed by 25 multinationals that are present in the country.
Around 70% of the country's demand of completed Medicine is uniting by The
Pakistan Pharmaceutical Industry. In terms of share market, the marital pharmacy

market is almost consistently separated between the Nationals and the Multinationals
(Maqsood 2003). At present the industry has the capacity to construct a variety of
product that range from simple tablets to difficult Biotech and different Generic
compounds. Pakistan Pharmaceutical business enjoy of quality manufacturer and
many units are standard by regulatory authorities approximately the world. Like
household market where in the last five years, the trade in international market have
moved out almost twofold.
Rising cost and outlay demands, dogmatic modifications and failing copyright
are most important to decreasing limits in the pharmaceutical industry. Almost three
in four corporations suppose their industry is in a planned disaster due to capital
structure and profitability. For this reason, 78% of the study contributor is of the
belief that pharmaceutical corporations must amend their production models to strong
the new market necessities (IMS data September 2004) . This includes focusing funds
on the high-growth promising selling’s units, which will construct up roughly 40% of
the universal pharmaceutical market by 2016.The data also highlights that other
sections like blood and blood forming organs, dermatology and systemic hormones,
has got significant growth, and if paying attention for providing extensively to the
total pharmaceutical market.
According to the Population Census Organization of Pakistan (2010), Pakistan
has a population of 16.98 million, with a growth rate of 2.69. Besides this health
awareness is also growing gradually, which may be accommodating in increasing the
per capita outflow in the future. capital structure and profitability in any country made
the country’s development by enhancing their capital assets and total equity of
shareholders. This will not only help to pay a country debt but also improves its
expansion (Antheony ,2012).
Capital structure is very important because it not only influence the
profitability of a company also influence the earning of the shareholders. Briefly
speaking, there are two type of capital structure: equity capital and debt capital, each
has its own benefits and disadvantage and corporate managers find the perfect capital
structure in term of risk and reward payoff for shareholders (hammes ,2003) .
Velnampy & Niresh (2012) ,worked on capital structure is how the company finances
its overall operations and maximizes its profitability by using different sources of
fund is capital structure. Bond issues or long term notes payables are part of debts and
common stock or retained earnings are part of equity. Good companies use the right
combination of debt and equity to keep their true cost of capital as low as possible,
there are verity of sources and entities are include in generation of capital structure to
maximize the profitability of the companies.
This assessments focal point is to explore the factors persuade the capital
structure of seven companies listed in the pharmaceutical and biotech sector of the
Karachi Stock Exchange. Power of pharmaceutical industry has been elected as a
delegate of capital structure and profitability of a firm which directly affects its long

or short term assets. Seven variables are disguised independent power of
pharmaceutical industry has been taken as the dependent variable making the basis for
our mutual regression model. Reliability tests is run in classifying the confirmation of
this model is constant larger than time. In all above investigation it simplifies that
capital structure and profitability are the key points for attaining growth in
pharmaceutical sector (Lalitha, 2002).
1.2 Purpose Statement
The purpose of this survey based on the quantitative study is to examine the
relationship between Capital structure and profitability for the achievement of trade in
the pharmaceutical sector of Pakistan. In this study return on assets, is 1st dependent
variable and return on equity is second dependent variable. On the other hand,1st
independent variable is short term assets, 2nd independent variable is long term asset,
3rd independent variable short term liability, 4rth independent variable long term
liability .where the 1st dependent variable return on assets can be generalized as the
percentage indicate how a company’s assets are profitable in producing revenue for
this company. The 2nd dependent variable return on equity defines as how a sound
company utilizes investment finances to make earning expansion. Both the dependent
variables return on assets and return on equity relates with the profitability and capital
structure.
1.3 Significance of the study
This study will enhance the awareness about the relationship of flow of funds
and profitability through assets and liabilities and will be helpful for the managers of
pharmaceutical sector to attain achievements through observing this study. Return on
equity should improve to be profitable for the company’s growth as if the growth of a
company increases it will be beneficial for the administrator of medicine laboratories
easily. Comprehensive quality assertion and control to the course of making different
medicines formulas allows manager to work with new or innovative strategies or
techniques for the profitability of the pharmaceutical industry. As in this era of
competition every consumer want high quality of biotech this exhaustive research will
prove fruitful for them in such a way that it will leads to full or appropriate
information for pharmaceutical sector of Pakistan. The Pakistan Pharmaceutical
Industry accumulates around 70% of the country's demand of experienced and
advanced medicine. This includes focusing funds on the high-growth capable selling’s
component, which will assemble up roughly 40% of the entire pharmaceutical market
by 2016 (IMS data September 2004). The marital pharmaceutical sector, in term of
share market is around having equally divided between the Nationals and the
worldwide of the medical industry, through this study manager of the pharmaceutical
industry are able to make estimates of against their total equity and profitability ratios
that how much it should be enhanced to be contributable for the economy of Pakistan.
This research attempt to elaborate the comprehensive discussion on the
profitability which helps the expansion for the pharmaceutical sector of Pakistan.

Bringing awareness for the pharmaceutical sector through this research is cost-
effective but safe way to increase profitability. This research would be a use full
addition in the existing literature as it provides the appropriate know how of the
medical sector financials of many years for the investment and productivity of
populace revenue structure and growth of capital frame core concepts are also
included in it. Research will explain the different features about capital structure and
boost up the resources for the productivity in the pharmaceutical sector of Pakistan
through different analysis and assessment models. This research is combined through
a lot of study guides, research novels, and literatures of different article make this
research a significant addition for all the community and the researchers as a guide
outline.
This research will add value to the ministry of health and services commission
of Pakistan through detailed discussion and analysis techniques to purify the way of
making formulas and relationship among various variables taken as a part of this
research. Traditional policy makers such as Ministries of Health in Pakistan have
limited resources and generally meeting point for them is only the service deliverance
all the way through government is in possession of or tight channel. There is a lot of
obstacle in government path in the availability of excellence of government support
services constrains large parts of the inhabitants into trade health services from the
ministry of health in Pakistan. In Pakistan. The introduction of health insurance was
not good in previous debates. My study will be proving beneficial for the longer term.
It also leads towards guidance in the form of a complete or reliable policy framework
and guarantee a sufficient level of rigid supervision. The function of this study is to
supply a compressed outline to the state of affairs, trends and new models and designs
which will give chance the pharmaceutical sector of Pakistan. It précis data from a
number of modern studies and reports that were completed by a range of different
studies inside and outside the country as well as discussions with key for the
shareholders of Pakistan in the sector.
1.4 Objective of the Study
The objectives of the study are:
 To determine the relationship between short term assets and return on assets in
the pharmaceutical sector of Pakistan.
 To investigate the relationship between long term assets and return on assets in
 To examine the relationship between short term liabilities and return on assets
in the pharmaceutical sector of Pakistan.
 To determine the relationship between long term liabilities and return on
assets in the pharmaceutical sector of Pakistan.

 To investigate relationship between short term assets and return on equity in
 To examine relationship between long term assets and return on equity in the
pharmaceutical sector of Pakistan.
 To determine relationship between short term liabilities and return on equity in
 To investigate relationship between long term liabilities and return on equity
in the pharmaceutical sector of Pakistan.
1.5 Research Question and Hypothesis
1.5.1 Research Question
What is the Impact of capital structure on the profitability in the pharmaceutical sector
of Pakistan?
1.5.2 Hypothesis
H1: There is a relationship between short term assets and return on assets in the
Ho: There is a no relationship between short term assets and return on assets in the
H2: There is a relationship between long term assets and return on assets in the
Ho: There is no relationship between long term assets and return on assets in the
H3: There is a relationship between short term liabilities and return on assets in the
Ho: There is no relationship between short term liabilities and return on assets in the

H4: There is a relationship between long term liabilities and return on assets in the
Ho: There is no relationship between long term liabilities and return on assets in the
H5: There is a relationship between short term assets and return on equity in the
Ho: There is no relationship short term assets and return on equity in the
H6: There is a relationship between long term assets and return on equity in the
Ho: There is no relationship between long term assets and return on equity in the
pharmaceutical sector of Pakistan
H7: There is a relationship between short term liabilities and return on equity in the
Ho: There is no relationship between short term liabilities and return on equity in the
pharmaceutical sector of Pakistan
H8: There is a relationship between long term liabilities and return on equity in the
Ho: There is no relationship between long term liabilities and return on equity in the

1.6 Term Definitions
Capital structure
Flannery (2006) defines capital structure as through which an organization
provide funds to its general operations by using altered sources of money. It involves
the mixture of equity and debt. The capital structure in balance sheet always found on
the right side which engages short term or long term liabilities of an organization in
the given period of time. There are thought by organization and the shareholders over
what blend of liability and shareholder equity to use. The equity or debts are the two
major elements that provide aid to make up a company.
Profitability
Bion B. Howard (2001) defines profitability as the blend of two words profit
and ability. It point out the control of an organization to earn profits. The ability of a
firm also signifies its producing control or operating performance. It is the
measurement of overall earning capacity of a firm .Profitability is the primary target
of a firm to achieve in long run for the development of its organization over the years.
Without profitability the firm will not stay alive in the long run. So computing present
and precedent profitability and projecting prospect profitability which is very crucial.
Profitability is considered with revenue and payment. Income is money collected from
the performance of the organization.
Long term assets
Steven M. (2003) defines assets as these are the financial resources. The worth of a
company's possessions, tools and other capital resources. These are informed on the
left side of the balance sheet. Assets that are not in intention to be twisted into cash or
be devoted within one year of the balance sheet date. Long-term assets consist of
long-term funds, possessions of property, plant, and other financial resources that
enhance the future profitability of the company.
Short term assets
J.Downes. (2003) defines current assets as which are easily converted into
cash or called liquid assets. These assets are held with a company within a year or lass
then one year. It includes account receivable, cash at bank, cash in hand etc. Current
assets show the liquidity of an organization. These assets are consumed within a year
or in the operating cycle without upsetting the regular process of an organization.
Long term liabilities
Pratt, Jamie. (2003) defines liability is a responsibility to give or provide
expected services for something that have granted upon in the earlier period. A long-
term liability is one the company imagines to pay over the course of more than one
year.

Short term liabilities
Markle, K. (2004) defines short term liability is one the company suppose to
pay in the short term with in the period of one year or less than one year using assets
prominent on the present balance sheet. The obligations that will settle by short term
assets are known as short term liability.
Return on equity
In the words of K. Jr. H. Clifton, (1975), "The return on equity communicates
net to Shareholder’s equity. Return on equity is the amount of money that is returned
to the shareholders from their equity and it computes the prosperity of owner's assets.
Return on equity assess an organization's profitability by informative how much profit
a company produce with the money shareholders have invested.
Return on assets
Return on assets (ROA) is a financial proportion that indicates the percentage
of profit that a company generates in relative to its general resources. It is normally
defined as net profits / total assets. ROA is identified as a profitability or productivity
ratio, because it gives information about organizations performance in using the assets
of the little production to produce profits (Allred, James K 1997).

1.7 Conceptual framework
Figure: 1
Figure: 2
Long Term
Assets
Short Term
Assets
Long Term
Liability
Short Term
Liability
Retrun of
Assets
Long Term
Assets
Short Term
Assets
Long Term
Liability
Short Term
Liability
Retrun of
Equity

CHAPTER NO 2
LITERATURE REVIEW
2.1 Literature review
Velnampy & Niresh (2012) investigate the relationship between capital
structure and profitability. The objectives of the study was, to find out the relationship
between capital structure and profitability, to find an optimal capital structure that
would be associated with the best performance and suggest a way to banks for
increasing profitability through adapting a better strategic framework of capital
structure. They study ten listed Srilankan banks over the past 8 year period from 2002
to 2009; correlation analysis was carried out to identify the relationship between
capital structure and profitability. They worked on the variables was, capital structure,
profitability, debt, equity, return on equity, where capital structure was the
independent variable and profitability was the dependent variable. The findings of the
analysis show that there is a negative relationship between capital structure and
profitability except the association between debt to equity and return on equity. They
concluded that 89% of total assets in the banking sector of Sri Lanka are represented
by debt, confirming the fact that banks are highly geared institutions. The outcomes of
the study may guide banks, loan-creditors and policy planners to formulate better
policy decisions as far as the capital structure was concerned.
Derayat (2012) determine the relationship between capital structure and
profitability in accepted companies of Tehran stock exchange. The aim of study was
to test the major financial management theories, through which examine the
relationship between capital structure and profitability of accepted firms in Tehran
stock exchange. In addition, by finding this association, they also discover the
importance of choosing an optimal capital structure by financial and economical
managers in Iran's capital market. The research community consists of all companies
accepted in Tehran stock exchange, which have been active continuously from 2006
to 2010, including variables of capital structure, profitability and Tehran stock
exchange. Research was deductive - inductive with regards to reasoning and
collection, descriptive - correlation - Ex post facto from data collection perspective.
The tests results of this analysis showed that, direct relationship between the variables
explaining the type of capital structure and company’s profitability. Moreover, there
was also some types of industry where the absence of relationship between capital
structure and profitability of companies. Therefore, implementing dummy variables
technique and examining the model on each industry indicates that, the existence and
extent of this relationship was different for different industries.
Frielinghaus et al, (2005) explore the relationship between capital structure
and the firm’s life stage. The purpose of the study was to find the relationship
between capital structure and the firm’s life stage, and suggest the model of capital

structure to the firm for financing. They provide overview of the two sets of theories
and follow this with a proposed linkage between the life stage and capital structure.
They use the questioners and Adizes life stage model to assess the life stage; they
examine the domestic and multi-national firms with ongoing operations in South
Africa. They use the two variable, capital structures and firm’s life stage. The key
finding of the study was produced some interesting results with consequences for
organizational life stage theory and capital structure theory, and for practical
applications in the field of corporate finance. And they suggested a practical use of
the life stage model can help the firms to understand how their financing is likely to
change over time.
Ajay & Madhumathi (2012) worked on the diversification strategy and its
influence on the capital structure decisions of manufacturing firms in India. The
purpose of the research was to inspect the impact of diversification strategies
(international market and product diversification) on the leverage decisions of firms
after controlling other major determinants of capital structure. The variables they use
in their research were Capital structure, international market diversification and
product diversification. They worked on the annual data of the manufacturing firms
for the period of 2004-2010 which was derived from prowess database maintained by
CMIE. The panel data set consists of 3103 companies combined to 21721
observations that include domestic as well as multinational corporations. Firms which
operate in the financial sector were not included in this analysis since their balance
sheets have a different structure from those of the non-financial firms. There were in
total 579 multinational companies (MNCs) and 2524 domestic companies (DCs) in
the sample which was classified on the basis of presence and absence of overseas
asset investment in their balance sheet. They use regression analysis technique to
explore the relationship between the variables. In the finding of the study they
examine that the diversification strategies (international and product) adopted by the
manufacturing firms and its influence on firm’s leverage ratio after controlling for
other determinants of capital structure for the period 2004-2010. This study intents to
help corporate decision makers to know and select most preferred financial mix to
maximize the overall market value of the firm. The study reveals that domestic firms
have higher debt in their capital structure as compared to multinational corporations.
Qureshi et al, (2012) They describe does diversification affect capital structure
and profitability in Pakistan. The purpose was of this study to identify and analyze the
nature of relationship that exists between diversification and capital structure as well
as profitability of Pakistan. They worked on four variables, capital structure,
profitability, diversification and Pakistan, where capital structure is dependent
variable and all others were dependent variables. The collect the data from food and
chemical sectors, and from various sources for example online publications, KSE, and
State Bank of Pakistan, of 10 years from 2000 to 2009. In their sample there are 74
companies of chemicals and food sectors listed at KSE. They use the regression and
correlation method to find the relationship among the variables. The finding of the

study shows that there was a strong positive correlation between product
diversification and return on assets as well as the debt ratio.
Amjad et al, (2012) worked on the determinants of capital structure of the
banking sector of Pakistan. The purpose of their study to explore the relationship
between dependent variable and independent variables, dependant variable was
leverage and independent variables was size, tangibility, profitability, growth
opportunities and liquidity. They select the banking sector of the Pakistan for the
research. They examine the data of 26 banks of the period of 2007 to 2011. They
collect the data from the form the Karachi stock exchange and Lahore stock exchange
and the publication of the state bank of Pakistan. They used the regression model for
find the relationship between the variables. The finding of their study was show that
size and liquidity have direct impact on the leverage and tangibly, profitability and
growth opportunities have inverse relationship with leverage.
Mesquita and Lara (2001) describe the capital structure and profitability in
Brazil. The purpose of this study was to define the capital structure which makes the
difficult decision easy which is affected by risk and profitably of the Brazilian
companies. They worked on the capital structure, profitability and debts. The collect
the data from the financial statements of the 70 Brazilian companies, the data was
consist of past seven years financial statements. They used the ordinary lest squares
method for explore the conclusion of the research. They conclude there was positive
relationship among short term debts and equity and negative relationship with long
term debts.
Shubia and Alsaqalhah (2012) explore the relationship of capital structure and
profitability. This research objected to provide international evidence of the way in
which capital structure is managed the significant impact on the profitability of firms.
They worked on the variables of Short term liabilities, Long term liabilities, Return on
Equity and Amman stock Exchange. They examined the data of 39 Industrial Jordan
firms listed on Amman Stock Exchange for a period of six years from 2004-2009 and
used regression analysis and statistical techniques to investigate the relationship
between capital structure and profitability. The results of the study showed that there
was indirect relationship between debts and profitability and direct relationship
between size, sale and profitably.
Abor (2005) explain the effect of capital structure on profitability of the listed
firms of Ghana. The purpose of the study was to investigate the relationship between
capital structure and profitability of listed firms on Ghana stock exchange. He worked
on the capital structure, gearing, Ghana and profit of the companies. He used the five
years data of the listed companies and regression analysis to find the relationship. The
finding of the study was showed that there was a positive relation between the ration
of short term debt to total assets and return on equity, and also a negative relationship
between the ratio of long term debt to total assets and return on equity. And finding

showed that a positive association between the ratio of total debt to total assets and
return on equity.
Chinaemerem and Antheony (2012) examined the impact of capital structure
on financial performance of the Nigerian firms. The objective of the study was to
explain and find the relationship between capital structure and financial performance
of the non-financial firm listed in Nigerian stock exchange. They worked on capital
structure, financial performance and agency cost and they collect the data from 30 non
financial firm listed in Nigerian stock exchange, they review and collected all the
information from the financial statement of the companies of the period of 2004 to
2010. The data collected and analyzed by using the ordinary least squares method.
The finding of the study shows that debt has significantly negative impact on the
return on assets and return on equity. And finding also showed that there was a
positive relationship between agency cost and financial performance.
Grill al el, (2011) worked on the topic “Effect of capital structure on
profitability” evidence from the united state. The aim of the study was to examine and
discover the relationship between capital structure and profitability of American firms
listed in New York stock exchange. They worked on the capital structure,
profitability, short term debts, long term debts, short term assets, long term assets.
They collect the data about the study form the financial statements of the 272
companies which are listed at New York stock exchange and use the correlation and
regression method for find the result. The findings of the study show that, positive
relation between short term debt to total assets and profitability in serves industries.
Where as in manufacturing industries was a positive relation of short term debt to
total assets and profitability, total debt to total assets and total profitability.
Dwilaksono (2010) define the effect of short and long term debt to
profitability. The intension of the study was to find the relationship between long term
& short term debt to profitability. Variables was used are short term debt, long term
debt, return on equity and profitability. He collated the data from the mining industry,
listed in stock exchange of in Indonesia in 2003 to 2007. He used the SPSS program,
regression analysis and ordinary least square method for finding the result. The
finding show that there was a positive relationship between short term debt and return
on equity, and negative relationship between long term debt with return on equity.
Adrianti analyzed on the effect of capital structure on the profitability
of manufacturing companies. The objective of this analysis was to determine the
effect of capital structure on the profitability of manufacturing companies listed in
Indonesia stock exchange. He worked on the capital structure and profitability, capital
structure was independent variable and profitability is dependent variable. He collect
the data from the listed manufacturing companies in Indonesia stock exchange, stoical
information gathered from financial statements of the 13 companies of the period of
2007 to 2009 and regression method was used for finding the result. The final results

of the analysis show that, there was no significant effect on the capital structure and
profitability.
Chen and hammes (2003) performed the penal data analysis of capital
structure. The objective of the study was to define and identify the factors that
influencing the firms leverage. Variables they used to identify the effect; dependent
variable was leverage, independent variable were market to book ratio, profitability
and size. They use the Rajan and Zinglaes (1995) model and ratios. They collect the
data from the 7 different countries: Canada, Denmark, Germany, Italy, Sweden, UK
and US. The findings of the research show that size, profitability, tangibility, market
to book ratio have significant impact on choice of capital structure, tangibility have
positively related to leverage and profitability show negative relation with leverage.
Size have positive impact on capital structure, and market to book have negative
significant relation for all countries in market leverage.
Abiodum (2010) examines the impact of firm’s capital structure on firm’s
profitability. The aim of the study was to find the relationship between capital
structure and profitability of companies listed in Nigeria stock exchange. He worked
on the firm size, debt financing, equity financing, debit-equity ratio and profitability.
He collect the data from the financial statements of the companies listed in Nigeria
stock exchange of the period of 10 years 2000 to 2009 and the co-integration
framework of regression model. The finding of the research shows that there was a
negative relationship between profitability and debit financing. The finding of the
study suggested to management in efficiently borrowing.
Shaheen and Malik (2012) investigate the impact of capital intensity, size of
firm and profitability on debt financing. The objective of the study was to analyze the
effect of size, profitability and capital intensity of the firm on debt financing in textile
industry of Pakistan. For this purpose three independent variables; capital intensity,
size of firm and profitability, dependent variables; debt financing are used. They
select the textile sector companies listed in Karachi stock exchange of Pakistan &
collected the data from the financial statements of the companies. They use the
ANOVA and financial ratios for finding the result of the study. The study concluded
that the debt financing in capital structure is affected by profitability, size and capital
intensity of the companies in textile industry of Pakistan.
Ahmad et al, (2012) worked on the effect of capital structure on firm’s
performance. The objective of the study was to investigate the impact of capital
structure on firm performance by analyzing the relationship between operation
performances of Malaysian Firms. The dependent variable of this study was
performance and independent variables were return on asset, return on equity, short
term debt and total debt. Research cover the two sector consumer and industry, they
collected the data from the financial statements of the 58 firms listed in Malaysia
stock exchange in the period of 2005 to 2010, and they applied the regression analysis

method. The finding of the study was, short term debt, total debts have significant
relationship with return on assets, while return on equity has significant on debt level.
Rafique (2011) worked on the effect of profitability and financial leverage on
capital structure. The main objective of the research was to define and investigate the
relationship between profitability of firm and financial leverage on the capital
structure of the automobile sector companies in Pakistan. She worked on the
variables; profitability, financial leverage, capital structure and automobile industry of
Pakistan. She collect the data from the financial statements of the 11 companies listed
in stock exchange of Pakistan and used the correlation coefficient test and regression
analysis for test the relationship. She found that profitability of the firm and its
financial leverage have an insignificant impact on the capital structure of the studied
firms.
Gatsi & Akoto (2010) explore the relationship in capital structure and
profitability. The intension of the study was to explain the relationship between
capital structure and profitability I Ghanaian banks. The variables in this study was;
capital structure profitability and Ghanaian banks, they utilized the data of the 14
banks listed in Ghana stock exchange and collect the financial information from the
financial statements, of the period of 1997 to 2006. They used the penal data method
for find the findings, according to the findings, 87 % of the total capital of the banks
in Ghana is made up with debt, of which 65 % short term debts and 22 % is long
debts. That showed banks are highly levered institutions, and long term debts are
more important than short term debts.
San and Heng (2011) examined the relationship between the capital structure
and corporate performance. The purposed of this study was to examine the nature of
relationship between capital structure and corporate performance of firm in
construction sector before and during crisis (2005-2008). They used the capital
structure as independent variable and corporate performance as dependent variable.
They collected data from 49 all listed construction companies in Main Board of Bursa
Malaysia. They analyzed data with the help of line series-cross section and these
study measure variables with 4 years from 2005 to 2008 on few ratios. Finally they
found that only EPS for small construction companies have significant relationship
with capital structure and they concluded that DC Debt to Capital has direct impact on
corporate performance of small companies and other independent variables do not
affect the dependent variables. Medium companies’ performance is partly affected by
the change in capital structure. The portion is small with medium companies but
lesser comparing to large companies.
Teh Boon Heng (2011) explored the relationship of capital structure and
corporate performance of firm before and during crisis (2007). In this research he
focused on construction companies which were listed in Main Board of Bursa
Malaysia from 2005 to 2008. He collected data from 49 construction companies that
based on paid up capital. Saad (2010) Capital structure refers to the firm's financial

framework which consists of the debt and equity used to finance the firm. Capital
structure was one of the popular topics among the scholars in finance field. The
ability of companies to carry out their stakeholders’ needs was tightly related to
capital structure. Therefore, this derivation was an important fact that we cannot omit.
Capital structure in financial term means the way a firm finances their assets through
the combination of equity, debt, or hybrid securities. Debt maturity would influence a
company’s option in investing. Furthermore, tax rate would also affect company’s
performance. He examined the impact of capital structure’s variables base on
company’s performance would present prove for a company’s performance due to
the effect of capital structure (Tian & Zeitun, 2007).
Abor’s (2005) examine the impact of the capital structure and corporate
performance. The intension of this study was to investigate the nature of relationship
between capital structure and corporate performance of firm in construction industry
during 2005 to 2008. Capital structure was used as independent variable and corporate
performance as dependent variable. They collected data from 49 listed construction
companies in Main Board of Bursa Malaysia. The use the line series-cross section and
ratios for finding the result of the study. Result of the study was only EPS (earning
per share) for small construction companies have significant relationship with capital
structure and they concluded that DC (Debt to Capital) have direct impact on
corporate performance of small companies and other independent variables do not
affect the dependent variables. Medium companies’ performance is partly affected by
the change in capital structure.
Gill, et al., (2011) found the effect of capital structure on profitability by
examined the effect of capital structure on profitability of the industrial companies
listed on Amman Stock Exchange during a six-year period (2004-2009). In this
research, they analyzed does capital structure affect the Industrial Jordanian
companies? They collected 39 companies as samples. They applied correlations and
multiple regression analysis. They took short term liabilities, long term liabilities,
return on equity, Amman stock exchange as a variables. The aim of this research to
found that variables was potentially relate with the profitability of firms. They found
that it reveal significantly negative relation between debt and profitability. The
capital structure was defined as the mix of debt and equity that the firm uses in its
operation. The capital structure of a firm was a mixture of different securities. In
general, firms can choose among many alternative capital structures. Firms could
arrange lease financing, use warrants, issue convertible bonds, sign forward contracts
or trade bond swaps. Firms could also issue dozens of distinct securities in countless
combinations to maximize overall market value.
Mojgan Derayat (2012) investigated the relationship between capital structure
and profitability of accepted companies in Tehran stock exchange. In this study, the
sample data collected from active companies in stock exchange between 2006 and
2010. According to this research result, direct relationship between the variables

explaining the type of capital structure used in companies and return on assets ratio as
an indicator for the company’s profitability had confirmed. Moreover, the type of
industry was affecting in the presence or absence the relationship between capital
structure and profitability of companies. Therefore, implementing dummy variables
technique and examining the model on each industry indicates that, the existence and
extent of this relationship is different for different industries.
Azhagiaiah and Gavoury (2011) examine the impact of capital structure and
profitability of IT industry in India. The objective of the study was examine the inter
relationship between capital structure and profitability based on Assets size and
revenue of business. Capital structure, profitability, return on assets, return on capital
employed and debt equity are variables which was used by them. They collects data
from center for monitoring India economy and 116 firms was selected as a sample,
listed in Bombay stock exchange. They applied statistical techniques , Pear Son’s
Coefficient and Regression and Ratio. They concluded that they has been a story one
to one relationship between Capital Structure and profitability variables and increase
in the use of debt fund and capital structure tend to reduce the net profit of IT firm
listed in Bombay Stock Exchange in India.
Ferati and Ejupi worked on Capital Structure and Profitability. Aim of the
study was to analyze empirically the impact of capital structure on the profitability of
the enterprisers. SME, profitability, financial risk and debt are variables used by them.
Last ten year data was collected from financial report of 150 firms, methods they used
was; correlation and regression analysis to measure individual impact. The result
showed positive correlation with short term debt and equity and an inverse correlation
with long term debt.
Amjed (2007) worked on the impact of Capital Structure on Profitability of
Pakistan’s Textile. The aimed of this study to investigated the relationship between
capital structure and financial performance of textile sector of Pakistan. He used the
dependent variable capital structure and independent variable as Profitability. He took
the data of 100 textile firms listed on the Karachi Stock Exchange for period 1999 to
2004 and he used variable s for analysis included profitability ratio and leverage ratio,
short term debt, long term debt and total debt. At the end he resulted was partially like
with the previous studies as the negative relationship between long term debt and
performance. The association of short term debt and Financial Performance in
contract attests the static trade off theory. Whole total debt has no association with
firm’s profitability due to different characteristics of Short term debt and Long term
debts.
Khan doker et al worked on the determinant of profitability of non bank
financial instantiation in a developing country aimed of this study was the indentify
major financial feature affecting the profitability in the NBFI industry of Bangladesh
and used the variable non banking financial institutions NBFI’s financial performance
and capital structure and collected data from the audited annual financial report

published by the listed 22 companies during 2008 to 2011 NBFI and analyzed data
with statistical software like SPSS that run Z test, T test and regression and results of
this research was to give a simple picture and leaves room for further study in
different areas of NBFI functions and this study provided managers with
understanding of activates that would improve their NBFI financial performance.
Howitt (1990) examine the relationship between capital structure and
profitability. The purpose of the study was find the significance of the capital
structure and profitability in the banking sector. The collect the data from the 23
banks of India, listed in India stock exchange. Capital structure and profitability are
variables used by him. The result of the study show that there is positive relationship
between capital structure and profitability.

CHAPTER NO 3
DATA AND METHODOLOGY
A research is conducted through different ways. Different researchers have
different point of view, values and beliefs with reference to their surroundings for
collecting data to their studies. Collection of data is the input for any research work
and facilitate researcher to construct a design for his research work. Data collection
begins with determining what kind of data or samples are required for a research. It
includes some standards which makes a paradigm. To add value for of this research,
preliminary discussion will includes the information about the paradigms that best fits
the attention of this research.
3.1 Research Paradigm
Paradigms are the outline or prototype that helps to standardize an
investigation within a regulation through different tests or processes. Paradigms are
the structures for completing a research study. Paradigms are the set of norms and
attitudes for designing a research. It may indicate the path through which a study
travels. According to Taylor, Kermode, and Roberts (2007) it is a broad observation
or perception of something. Paradigms usually used in treatment of research like
positivist, interpretive and pragmatic theory application. It is outline which helps a
researcher to design a research. There is a great debate in relation to the research
paradigm, the plan of this chapter is to talk about the research design and
methodology used in this study. In order to express the mixture of research
performance assume during this study, the data anthology actions and connected
analysis methods will be analytically argued under three segments.
Positivism research is based on scientific methods or psychological experience
to describe or understand the prediction about individuals. Research has been
expressed as an organized analysis or assessment through which the data is collected
by information or observation. Positivist study based on scientific facts and figures,
human feelings, convincing knowledge derived from logics or arithmetical treatments.
The one and only aim of this positivist paradigm comprises on reality or facts. In this
paradigm data is verifies through senses, tests are conducted and theory is verified.
Positivist paradigm (Burns, 1997) relates with the scientific tests and experiment to
show the logics, specifics of data and authenticity. The positivist paradigms occur
through correct facts and rigid rules.
According to Schultz, (1962) interpritivism paradigm relates with many truths
and authenticity concluded from different peoples point of view. Many people have
different awareness, requirements and understanding. Interpretivist has different
beginnings in different regulation. The interpretivist paradigm developed as an
evaluation of positivism in the scientific studies. In general, interpretivists allocate
the all community convictions and ideas about the nature of perceptive and

authenticity. This approach carrying out investigation in a courteous conduct
attentiveness and expression of the variety and explanation of the associate makes
during the examination procedure and confirmation of taking accountability for those
preference. In this approach the researcher will interview the populace and be familiar
with the assessment and deepness of the individual substance. In this research
approach representatives are those who should competent to provide proficiency from
different perspectives. The source used in this data is appropriate words of interview
data.
Pragmatism is a research approach that is a combine study of qualitative and
quantitative methods (Johnson & Onwuegbuzie, 2006). It provides new opportunity
for concentrate on procedural problems in the social sciences. The pragmatic
approach work on adaptation of way of thinking that moves back and forward
between induction and deduction. Pragmatic approach alters comments into theories
and then measures those theories through action. In research statics it is often delight
solely as using theories to report for explanations. From a pragmatic point of view,
however, the only way to measure those assumptions are by action. Hence, one of the
most general exercise of seizure in pragmatic analysis is to further a process of
inquiry that assess the conclusions of previous guidance during their capability to
forecast the workability of expectations of behaviour. In this approach the information
is collected from all over the world and a single persons or populace is considered as a
part of this technique.
In observing all of the debate in analysis positivism research approach is used
in this study be set to tests, make investigations and verify the hypothesis or theory
with appropriate familiarity and examination. The paradigm used in this study is
positivism which relates with the quantitative research. The positivist paradigm deals
with actual fact and reality of the world through different tests. This paradigm begins
from the idea recognized as logical positivism which is relying with strict rules and
processes. A valid research is established only by the scale of verification that can be
communicate to the phenomena and provide accurate results for research.
3.2 Research Approach
Research approach is used to reach at the decision of the specific phenomena
of a research study. There are three types of research approaches in a research study.
Qualitative approach, quantitative approach, mixed method research. Quantitative
research is usually connected with the positivism paradigm. It usually occupies
assemble and converting data into statistical form so that statistical calculations can be
made and conclusions tired from this. Qualitative research is the approach frequently
linked with the communal paradigm which highlight the generally assemble nature of
reality. It is about copy, investigate and effort to expose the importance and
consequence of human behaviour and practice, including opposing beliefs, behaviours
and passion. Researchers are paying attention in achievement and complex
understanding of people’s familiarity and not in acquiring information which can be

global to other larger cluster. The mixed method approach includes both the above
mentioned approaches in its fundaments to explain or investigate a fact.
Quantitative approach relates with scientific data which consist of reality and
true figures. This approach relates with statistical or mathematical data. This research
has clearing phenomena by assembling mathematical information. This is analysed by
means of numerically based techniques. In order to be able to arrive at a decision the
positivist collect data in to numeric form to have solution or answer there setback
easily in research. The intention of quantitative research is to build up and spend
statistical moulds, theories and hypotheses relating to phenomena. All phases of the
research are vigilantly considered earlier than the statistics is composed. Developing
models, theories, and hypotheses of what the researcher expects to find. Quantitative
research relates with initialling tools and techniques for computing the data.
Qualitative approach relates with empirical statements. Generally, empirical
statements are articulated in mathematical language. An additional aspect in this
research approach is that empirical assessment is used in practise. Empirical
assessments are defined as a structure with the purpose of search for establishing the
scale to which a definite processes and strategy pragmatically perform a certain model
or rule and attitude. This approach is an examination into a community or creature
dilemma support with testing a theory make with variables. (John W. Creswel, 1994)
Qualitative research is all about recording, analysing or obtain information
from peoples experiences. the approach approved by qualitative researchers have a
tendency to be inductive which means that they build up a theory or glance for a
outline of connotation on the origin of the data that they have composed. This
involves a move from the precise to the common. However, most research mission
also involves a assured degree of deductive logic. Qualitative researchers (John,1994)
do not support their research on programmed hypotheses. Nore, they obviously
recognize a trouble or theme that they want to discover and may be conduct by a
hypothetical data collection. It is a kind of theory which offers a structure for their
examination. The approach to data anthology and analysis is systematic but permit for
larger reliability than in quantitative research. Data is composed in documentary form
on the basis of inspection and communication with the contributors. It is not
converted into statistical form and is not statistically evaluated.
Mixed method research approach relates with the both above debated
approaches. guba,(1994) explained it as It is also known as pragmatic approach
which has the features of both studies. It uses system and course of action
characteristically connected with quantitative or qualitative research. They may also
use different procedures at the same time or later on. For instance, they might
commence their research study of interviews with several people or have a focus
group and then use the findings to build a questionnaire to compute thoughts in a
large scale trial with the intention of transport the statistical analysis of the
community in their research.

As indicated above research approach used in this study is quantitative
approach. This research approach is applied to show the pragmatic outcome of
variables. The intention of this approach is to analyze the association of profitability
with different surveys or experiments in the pharmaceutical sector of Pakistan. This
research has carry out to test the various variables as short term assets, liabilities, long
term assets and liabilities with respect to different researcher’s debate and
experiments and tests. Neutrality is very imperative in quantitative research.
Subsequently, researchers take immense care to avoid their own existence,
performance or actions moving the results. They also significantly examine their
methods and conclusions for any potential favouritism. This approach contains
positive impacts that help to make exact fats and reliable observation of the argued
information in a research.
3.3 Sources of Data
A research is combined through different amount of data and information.
This all data contains two categories, primary data and secondary data. Primary data
is that you have composed physically. It comprises appraisal, interrogation,
inspection, and environmental research. These resources take in up to date knowledge,
skills, and abilities to make surveys, beliefs and scientific measurements of facts and
figures. Primary data is such information that has not been computed before in any
other study. It relates with the personal abilities of individual to conduct a research
through innovative and feasible information. Identify methods or ways of constancy
in the unpredictability of data sets for specified variables, and clearing up them in
expression of causal association is one of the main objectives of any scientific control
of data collection (Penrose, 2004) . Performing prime research is a valuable expertise
to attain as it can deeply enhance a research in secondary source. Secondary data is
collected from primary source of data by using quantitative techniques. So the base of
secondary data is primary data as it discloses information from census, old records
etc. It has already been combined by a lot of researchers to help their studies through
scientific primary data techniques.
The secondary data may be collected from a lot of sources such as
computerised data, previous literatures and surroundings course of actions. The source
of data which is consumed in this research is secondary data. Annual reports are used
for data collection which discloses full information as required for this research. The
facts and figures applied in this study are collected in the light of primary source to
throw light on the Pakistani pharmaceutical companies and laboratories for the
purpose of testing their profitability with related variables. The data is collected from
10 companies embraced with 3 number of years as 2010, 2011 and 2012 years data
from the pharmaceutical sector of Pakistan. The source used in this research is
internal company document as annual reports are taken to combine the information of
pharmaceutical companies of Pakistan.

3.4 Population and Sample
Population shows the complete cluster or fundamentals with general
individuality. it show the region on which a research is conducted. The population of
this study is the community of pharmaceutical sector of Pakistan. The population size
of this research is 30. Whereas the sample is considered as the small group of the
huge community which characterize the whole population. So the sample of this
research is 10 pharmaceutical companies with 3 years data from internal companies
documents or annual reports has been taken for the accomplishment of this research
task.
Table: 1
Sr.No Companies Name
01 SANOFI
02 Glaxo Smithkline Pakistan ltd.
03 High noon laboratories ltd
04 wyeth pakistan ltd.
05 Feroz sons laboratories ltd.
06 Outsuka pakistan ltd.
07 Abbott pakistan.
08 IcI Pakistan ltd.
09 Searle pakistan ltd.
10 Ferozsons Laboratories ltd.
3.5 Methodology
Descriptive analysis is the expression specified for examination of data which
aids to express, explain or précis data in a significant sample that has combined from
a large amount of data. Descriptive statistics does not permit to compile information
ahead of data which is assessed early for our decision. It helps us to draw conclusions
and make assumption of our data. In short it is a technique to explain a data. The base
if descriptive statics techniques are inferential statistic as inferential statists helps to
make observation for the descriptive data. In research it is used to describe the
association of different variables of a study to draw hypothesis against them from
different assessments of data. It helps us to present our data in more momentous or
significant manner. In research it aids to properly describe information through
statistics and graphs. According to J.W Tukey, (1977) qualitative descriptive
approaches are very supportive because facts of practice and data can be easily
checked when quantitative processes are applied.
Inferential analysis refers to make simplification derived from approximation
support with future point of view. Inferential statistics make assumption which relates
with some observations. These observations grip with straightforward starting with a
sample to make assess and inferences in relation to huge community. Inferential
statistics permit to construct statistical overview of a phase. With this statistics
technique, researchers are trying to accomplish results. This analysis is done for
predicting data of a large population from a sample by using different numeric

computations on research population. Inference statistic is the process of drawing
conclusion from information that is subject to random dissimilarity. Inferential
method used the estimation and testing techniques to reach at a phenomenon.
Inferential analysis is basically used to check the possibility of happening or non
happening of an observed decision. This is also indicated for making the average
percentage between two components or variables in a research. (J.W Tukey, 1977)
Histogram is the graphical representation of the data of a specific study. In a
histogram, the achievements are point out on the parallel axis and the frequencies are
revealed on the vertical axis. A histogram is graph that exposes frequency of data take
place within definite collection or intervals. The height of bars shows the frequency
level of the data. Histogram takes a lot of data then make grouping of such data into
parts and shows the graphical occurrence of that data. According to (Snee and Pfeifer
1983) Histograms are valuable for imagine a data allocation. A histogram not only
makes indications about the frequencies it also exposes the mean, median and mode
of the certain data in a research work. Median shows the middle of the graph from
where the data is regards as distributed. Histogram are widely utilizes in statistic to
show how many definite variables are identified from a huge amount of information.
A scatter plot is a valuable graphical strategy use in the descriptive statistics
for envisage or imagine information. Scatter plots are well-known way of imagine
detached data standards with two data variables as a gathering of separate points. It
aim at simplify the impression of scatter plots to the idea of spatially constant
contribution data by a constant and solid plot. An example of a permanent input field
is data defined on spatial network with relevant interruption or rebuilding of in-
between values. According to (utts, 2004) Scatter plots have been proven booming
and positive diagramming method in descriptive statistics and information revelation.
They take separate data points with two data proportions as input, and construct those
data points by drawing particular dots on a diagram with two orthogonal axes
signifying the two data dimensions. Scatter plots are effective in displaying
relationship in the data, such as correlation or other patterns.
Regression is a statistical technique that approximates the dependence of a
variable of concentration on one or more independent variables. It is used to calculate
approximately the outcome on the dependent variable of a given independent variable
while managing the control of other variables at the same moment. According to fox,j
(1991) the addition and performance of a detailed graphical methodology in statistic is
regression. It is an authoritative and elastic technique that can be used in a multiplicity
of ways when computing and authenticate the impact of different effectiveness
ventures. Through these course of action basic consideration of the related
arithmetical measures and hypothesis are obligatory to use regression analysis with
proper authenticity. Regression designs are necessitate several interpretation on the
dependent and independent variables. Sometimes when advisory variables are not
voluntarily accessible it helps us to make access to alternative. A regression process
consist of a process of classify all independent variables used in regression

representation then it collects data about that variables for a examine phase that is
delegate of the best course of action. Afterwards it coordinates data into suitable time
period. Through this appropriate and synchronized data it makes the graphical
representation of that data. This data helps researcher to Validate and authenticate his
research work in a good manner.
Correlations are the linear association linking two variables. The correlation
coefficient is a measure of the combination between two arithmetic variables,
frequently represented as x and y. It is a proportioned bond: if x is related with y, y is
correlated with x. Its value lies between +1 and -1. A optimistic coefficient designate
that a high value of x have a propensity to be connected with a high value of y and a
pessimistic coefficient point out that as the rate of x raises the value of y is probable
to decline. A coefficient of +1 is a perfect positive correlation between x and y,
although a coefficient of -1 is a perfect negative correlation A coefficient of 0
indicates that there is no connection between the two variables. Correlation is an
algebraic purpose of how two variables shift in relative to each other. Chen PY,
(2002) Correlations are exercised in complicated assortment management. The
Pearson’s correlation coefficient is a broad computation of relationship between two
permanent variables. It is defined as the proportion of the covariance of the two
variables to the creation of their particular standard deviations. Spearman’s rank-order
correlation coefficient is a grade support description of the Pearson’s correlation
coefficient. It approximate or test correlation coefficient.

CHAPTER NO 4
ANALYSIS
4.1 Descriptive Analysis
4.1.1 Descriptive Analysis
Table: 2
Descriptive Statistics of Figure 1
N Minimum Maximum Mean Std. Deviation
Short Term Assets 30 4.93E5 1.06E9 1.6077E8 3.26264E8
Short Term Liability 30 1.09E5 6.40E8 7.7039E7 1.66016E8
Long Term Assets 30 1.55E5 1.56E9 2.3759E8 4.98016E8
Long Term Liability 30 .00 8.81E8 7.2791E7 1.89069E8
Return on Assets 30 .02 .76 .1374 .16634
Valid N (listwise) 30
In this table Five variables are given, short term assets, short term liability,
long term assets, long term liability and return on assets, it provide us the overall
summary of the data, there are 30 companies data in this observation. The minimum
value of data is lays between .00 to 4.93, the maximum value between .76 to 8.81,
mean is between .1374 to 7.7039 and stander deviation is between .16634 to 4.98016.
4.1.2 Descriptive Analysis
Table: 3
Descriptive Statistics of Figure 2
N Minimum Maximum Mean Std. Deviation
Short Term Assets 30 4.93E5 1.06E9 1.6077E8 3.26264E8
Short Term Liability 30 1.09E5 6.40E8 7.7039E7 1.66016E8
Long Term Assets 30 1.55E5 1.56E9 2.3759E8 4.98016E8
Long Term Liability 30 .00 8.81E8 7.2791E7 1.89069E8
Return on Equity 30 .19 5.05 1.2852 .92677
Valid N (listwise) 30

In this table Five variables are given, short term assets, short term liability, long term
assets, long term liability and return on equity, it provide us the overall summary of
the data, there are 30 companies data in this observation. The minimum value of data
is lays between .00 to 4.93, the maximum value between 1.06 to 8.81, mean is
between 1.2852 to 7.7039 and stander deviation is between .82677 to 4.98016.
Short Term Assets
Figure: 3
In fig. 3 the frequencies (number of Companies), shown by the bars are for a
range of points (in this case SPSS selected a range of 100000000: 200000000-
3999999999, 300000000-499999999, etc). Notice that the largest number of
companies (about 25) had scores at the left side bar of the range (0-99999999).
Similar small numbers of Companies have very high scores. Notice that the bars form
a pattern very different from the normal curve line. Thus show that the frequency
distribution of the COUNT Short Term Assets is said to be not normally distributed.
As we see later in the chapter, the distribution is positively skewed. That is, extreme
scores or the tail of the curve are on the high end or right side. Note how much this
differs from the normal frequency distribution.

Short Term Liability
Figure: 4
distribution of the COUNT Short Term Liability is said to be not normally distributed.

Long Term Assets
Figure: 5
distribution of the COUNT Long Term Assets is said to be not normally distributed.

Long Term Liability
Figure: 6
distribution of the COUNT Long Term Liability is said to be not normally distributed.

Return on Assets
Figure: 7
range of points (in this case SPSS selected a range of 10: 20-19, 20-39, etc). Notice
that the largest number of companies (about 20) had scores at the left side bar of the
range (0-9). Similar small numbers of Companies have very high scores. Notice that
the bars form a pattern very different from the normal curve line. Thus show that the
frequency distribution of the COUNT Return on Assets is said to be not normally
distributed. As we see later in the chapter, the distribution is positively skewed. That
is, extreme scores or the tail of the curve are on the high end or right side. Note how
much this differs from the normal frequency distribution.

Return on Equity
Figure: 8
range of points (in this case SPSS selected a range of 10: 1-2, 2-3, etc). Notice that the
largest number of companies (about 10) had scores at the left side bar of the range (1-
1.5). Similar small numbers of Companies have very high scores. Notice that the bars
form a pattern very different from the normal curve line. Thus show that the
frequency distribution of the COUNT Return on Equity is said to be not normally
distributed. As we see later in the chapter, the distribution is positively skewed. That
is, extreme scores or the tail of the curve are on the high end or right side. Note how
much this differs from the normal frequency distribution.

Short Term Assets & Return on Assets
Figure: 9
The output shows a scatter plot for two scale variables i.e. short term assets
and return on assets. The overall pattern of the dots show that it is from diagonal
down ward straight regression line showing negative association between the two
variables and the points fit the line not pretty well and there are very values dispersed
far from the regression line so it seems that there is negative relationship between
short term assets and return on assets.
Quadratic – Linear = Out Put Value
0.019 - 0.013 = 0.006
0.05 > 0.044 so Pearson Correlation

Long Term Assets & Return on Assets
Figure: 10
The output shows a scatter plot for two scale variables i.e. long term assets and
return on assets. The overall pattern of the dots show that it is from diagonal down
ward straight regression line showing negative association between the two variables
and the points fit the line not pretty well and there are very values dispersed far from
the regression line so it seems that there is negative relationship between long term
assets and return on assets.
0.058 - 0.004 = 0.054
0.05 < 0.054 so Spearman Correlation

Short Term Liability & Return on Assets
Figure: 11
The output shows a scatter plot for two scale variables i.e. short term liability
short term liability and return on assets.
0.03 - 0.023 = 0.007

Long Term Liability & Return on Assets
Figure: 12
The output shows a scatter plot for two scale variables i.e. long term liability
variables and the points fit the line not pretty well and there are some values dispersed
long term liability and return on assets.
0.011 - 0.01 = 0.001

Short Term Assets & Return on Equity
Figure: 13
The output shows a scatter plot for two scale variables i.e. short term assets
and return on equity. The overall pattern of the dots show that it is from diagonal
short term assets and return on equity.
0.044 - 0.038 = 0.006

Long Term Assets & Return on Equity
Figure: 14
The output shows a scatter plot for two scale variables i.e. long term assets and
return on equity. The overall pattern of the dots show that it is from diagonal down
ward straight regression line showing negative association between the two variables
and the points fit the line not pretty well and there are very values dispersed far from
the regression line so it seems that there is negative relationship between long term
assets and return on equity.
0.015 - 0.014 = 0.001

Short Term Liability & Return on Equity
Figure: 15
The output shows a scatter plot for two scale variables i.e. short term liability
short term liability and return on equity.
0.1 - 0.066 = 0.034

Long Term Liability & Return on Equity
Figure: 16
The output shows a scatter plot for two scale variables i.e. long term liability
variables and the points fit the line not pretty well and there are some values dispersed
long term liability and return on equity.
0.038 - 0.031 = 0.037

4.2 Correlation
4.2.1 Correlation
Table: 4
Correlations
Return on Assets Short Term Assets
Return on Assets Pearson Correlation 1 -.112
Sig. (2-tailed) .555
N 30 30
Short Term Assets Pearson Correlation -.112 1
N 30 30
To investigate if there was a statistically significant association between short
term assets and return on assets, a correlation was computed. Both the variables were
approximately normal there is no relationship between them hence fulfilling the
assumptions for pearson correlation. Thus, the pearson is calculated, .555 > 0.05
relating that there is non significant relationship between the variables.
4.2.2 Correlation
Table: 5
Correlations
Return on
Assets
Long Term
Assets
Spearman's rho Return on Assets Correlation Coefficient 1.000 -.078
Sig. (2-tailed) . .682
N 30 30
Long Term Assets Correlation Coefficient -.078 1.000
Sig. (2-tailed) .682 .
N 30 30
To investigate if there was a statistically significant association between long
assumptions for spearman correlation. Thus, the spearman is calculated, .682 > 0.05

4.2.3 Correlation
Table: 6
Correlations
Return on Assets Short Term Liability
N 30 30
Short Term Liability Pearson Correlation -.153 1
N 30 30
4.2.4 Correlation
Table: 7
Correlations
Return on Assets Long Term Liability
N 30 30
Long Term Liability Pearson Correlation -.101 1
N 30 30

Impact of Capital Structure on Profitability in Pharmaceutical Industry of Pakistan.

Impact of Capital Structure on Profitability in Pharmaceutical Industry of Pakistan.

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