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Quarterly Journal of Econometrics Research

March 2015, Volume 1, 1, pp 1-12

The Effect of Selected Financial Ratios on Profitability: An Empirical Analysis of Listed Firms of Cement Sector in Saudi Arabia

Muhammad Nauman Khan

,

Imran Khokhar

Muhammad Nauman Khan 1

Imran Khokhar 2

  1. Lecturer, Finance Department, College of Business Administration, King Saud University, Riyadh, Saudi Arabia & PhD Research Fellow, Institute of Islamic Banking and Finance, International Islamic University, Malaysia 1

  2. Researcher, Economics Department, College of Business Administration, King Saud University, Riyadh, Saudi Arabia 2

Pages: 1-12

DOI: 10.18488/journal.88/2015.1.1/88.1.1.12

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Abstract:

The plinth emergence of infrastructures sector in the Kingdom of Saudi Arabia cardinally hinges upon the growth and development of the Cement industry. The Saudi cement industry is most cost competitive in the world due to availability of raw material and Fuel at very low prices by the government. This has encouraged the researchers to analyze the relationship between profitability and selected financial ratios of cement industry in Saudi Arabia. The research paper makes an endeavor to determine the profitability of listed cement companies in Saudi Arabia with five years accounting period from 2008 to 2012. The paper encompasses six variables, namely, Debt to Equity Ratio (DER), Inventory Turnover Ratio (ITR), Debtors’ Turnover Ratio (DTR), Creditors’ Velocity (CRSV), Total Assets Turnover Ratio (TATR) and Net profit Margin (NPM). Profitability as a dependent variable is exhibited by Net profit Margin (NPM) while the selected ratios DER, ITR, DTR, CRSV, TATR and CRSV are expressed as independent variables. Based on the findings of the study, it is cogently revealed that there is a significant relationship between the three selected ratios and Net Profit Margin (NPM) of cement companies in Saudi Arabia.
Contribution/ Originality
This study is one of very few studies conducted on the relationship among different financial ratios and profitability of the companies in Saudi Arabia. The present research investigated the effect of determinants on profitability of cement sector listed companies in Saudi Arabia. Current study concluded that DER, ITR and CRSV have positive effect on the NPM of cement companies.

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Reference:

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