The Relationship between PROFITABILITY & Various Economic Indicators

ABSTRACT:
Profitability is the most discussed issue of the business sector. A number of factors have been suggested to increase the profits of a firm. Those factors are not always useful for all companies of a specific industry. Sometimes situations deviate from what theories say. We have discussed the same in this report that whether the profitability of our industry is consistent with the theories. We have analyzed Fertilizer industry of Pakistan, taking under consideration the statistics of four listed companies of KSE, which are as follow: 4. Fouji Fertilizer Company Limited (FFCL) 5. Engro Chemicals Pakistan Limited (Engro) 6. Fouji Fertilizer Bin Qasim Limited (FFBL) 7. Dawood Hercules Chemicals Limited (DHCL)

Research Topic:
Linkage of following financial and economic profitability of Fertilizer sector in Pakistan; 8. Liquidity (Current Ratio & Quick Ratio) 9. Leverage 10.Market Price Per Share 11.Year to Year Growth In Revenues 12.GDP 13.GNP indicators with

Theories about Profitability:
"Perhaps no term or concept in economic discussion is used with a more bewildering variety of well established meanings than profit." Frank Knight (1934, p, 480).

In a noninflationary world of family firms using one-period capital inputs with no taxes or debt, measuring profit would be a relatively straightforward matter of deducting expenses from receipts. The accountant's books and the economist's books would coincide. But in the presence of long-lived assets of various maturities, price changes, debt financing, and taxation, the two book keeping systems diverge and researchers face some difficult questions. Should profit-type income include net interest payments? How holding gains on real assets or on net financial liabilities should be treated? Should profitability be measured on gross capital stock (including depreciation in the numerator) or net stock (excluding depreciation), and indeed are average accounting rates of profit meaningful at all? Trade-off theory of capital structure basically entails offsetting the costs of debt against the benefits of debt. MM 1963 introduced the tax benefit of debt. Later work led to an optimal capital structure which is given by the trade off theory. The first element usually considered as the cost of debt is usually the financial distress costs or bankruptcy costs of debt. It is important to note that this includes the direct and indirect bankruptcy costs. Trade-off theory can also include the agency costs from agency theory as a cost of debt to explain why companies don’t have 100% debt as expected from MM 1963. 95% of empirical papers in this area of study look at the conflict between managers and shareholders. The others look at conflicts between debt holders and shareholders. Both are equally important to explain how the agency theory is related to the trade-off theory. Following is a brief description of profitability in term of several financial and economic indicators.

Leverage and profitability
Theories of capital structure indicate that profitability is an important determinant of leverage. Element of financial risk is high in highly leveraged companies as compared to low leveraged companies. Equity holders are to be rewarded with a higher financial premium in case of highly geared companies. The more the leveraged firm, more the profits are related to it according to the general perception.

Liquidity & Profitability
The firms are considered more sustainable which have good liquidity. This is backed by the phrase, one in hand is better than two in the bush. The profits are related to it theoretically. More liquid a firm is, more strongly it can face its creditors. This will ultimately increase firm’s strength.

Market price/share & profitability
Usually as per analysis market value of share is linked to profitability and dividends of the company which is also inherently linked with profits of the company. Companies in fertilizer sector with substantial profits have a higher market value as compared to companies with low profits. So it is perceived

that higher market value of a firm leads to higher profitability.

Growth in Revenues & profitability
Growth in revenues determines the future outlooks and market value of the company. As revenue increases it not only helps to increase the value of shareholder but provides liquidity to finance the profitable projects which may lead to integration and diversification.

GDP & Profitability
GDP is an economic indicator showing income on domestic basis. Usually when GDP of a country increases, the firms and industries flourish. Increase in GDP, thus, have a direct impact on profitability.

GNP & Profitability
It is also an economic indicator on national and international basis. Increase in exports and decrease in imports of fertilizer products would lead to increase in GNP. Hence exporting more products may lead firms to earn more and increased profitability.

A Brief Overview of Fertilizer Sector in Pakistan:
Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by generous foreign assistance and renewed access to global markets since 2001, have generated solid macroeconomic recovery the last five years. Pakistan has moved from an economy heavily dependent on agriculture to a relatively balanced economy based on services, industry and agriculture. As of FY07, agriculture contributed 20% to the overall GDP. The government policies are directed towards improvement of agricultural output through increased credit disbursements to the agricultural sector and improvement in irrigation. Fertilizer usage in Pakistan is low and the current fertilizer consumption stands at 162.5kg per hectare. This is in large part responsible for the low yield per hectare of cultivated land which stands at 1.44tn per hectare. Fertilizer consumption closely follows economic growth of the country as exhibited by the strong positive correlation (R2=0.9841) between fertilizer consumption per hectare and nominal GDP. As the economy is expected to perform well in the future with an estimated nominal GDP growth of 14%, we expect fertilizer penetration to increase to 187kg per hectare. This greater demand is expected to continue in the future as economic growth continues. The industry capacity currently stands at 5.8mntpa whereas local demand is

Later on the subsidy may be withdrawn from that portion of production which is exported. The Companies in our coverage are dominant players who hold attractive investment portfolios.e. And under the last category. yield per hectare of Pakistan is showing gradual improvement although it is still low as compared to other countries. which represents 65% of total fertilizer consumed and di-ammonium phosphate (DAP). is DAP. potassic is sulphate of potash which makes up only 1%. until the industry faces an excess supply situation. This subsidy is expected to remain in place at least for the next three to four years i. DAP is used. Urea.6. Through this subsidy manufacturers are able to get feed stock gas at significantly lower rates than the market which improves their profitability. Pakistan’s fertilizer manufacturers have low resource costs due to feedstock gas subsidy advanced by the government.8mntpa.44tn per hectare. are the main types of fertilizer used in Pakistan. triple super phosphate (TSP). which accounts for 18%. Since the soil in Pakistan generally tends to be deficient in nitrogen. . measured by current ratio has no significant effect on profitability. 3) Encouraging use of fertilizer. Production directed towards local sales is expected to continue receiving the subsidy. 4) Above average credit disbursements As a result of these policies. The government is omitted to improve agriculture performance through the following measures 1) Irrigation system improvement 2) Subsidy to farmers. but there is a total of eight different fertilizer products which fall into three categories. Under the phosphatic category which makes up about 27%. as most phosphatic fertilizers are to counter the effect of the acidic urea and maintain levels of fertility in the soil. urea is the most used fertilizer. single super phosphate (SSP) and nitrophosphate (NP). This excessive demand ensures sales of total production. Types of fertilizer Urea. This includes FFCs investments in FFBL and ENGROs investments in various subsidiaries. Statistical Analysis HYPOTHESIS TESTING H0: Liquidity. along with calcium ammonium nitrate (CAN) and ammonium sulphate (AS) together make up almost three fourths of total fertilizer consumption and come under the nitrogenous category. Currently it stands at 1. Pakistan’s agricultural output has suffered in the recent past due to adverse weather conditions and crop spoilage.

760(a) R Square . H0: MARKET PRICE PER SHARES has no significant effect on profitability. For Fouji Fertilizer. Model 1 R .H0: Higher degree of leverage does not lead to change in profitability in fertilizer sector firms listed on KSE. there is positive relationship between profitability and current ratio of liquidity.436 Std. we find upward trend in profitability as liquidity increases.227 .577 Adjusted R Square . as the co-efficient of determination (R=76%) indicates strong relationship between the two variables. there is an individual analysis of each firm how the profitability of the firm is affected by liquidity ratio. H0: GNP has no significant effect on profitability. H0: GDP has no significant effect on profitability.80487 Durbin-Watson 2. H0: Growth in Revenues has no significant effect on profitability. Error of the Estimate 5. Testing tool: CHI SQUARE and LINEAR REGRESSION LINKAGE OF CURRENT RATIO ON PROFITABILITY FAUJI FERTILIZERS:Fauji Fertilizer is directly affected by liquidity. Before going to an industry analysis. Also looking at related graph.

Current Ratio b Dependent Variable: %age change in EBIT Histogram Dependent Variable: %age change in EBIT 2. Adjusted R Std.866 N=5 Regression Standardized Residual FAUJI FERTILIZERS BIN QASIM:Model of FFBL indicates that the company is not as much dependent on the liquidity as Fouji Fertilizers.0 0. Again strong correlation can be seen in the above table. D-W value is more than 2.5 y c n e u q e1. Current Ratio b Dependent Variable: %age change in EBIT Model 1 Durbin-Watson 2.5 -1.805 .0 -0.0 1. But the co efficient of determination is weaker.190 62.a Predictors: (Constant). Error of R R Square Square the Estimate .0 Mean = 1. = 0.30031 a Predictors: (Constant).5 0. Dev.393 .28E-15 Std. which mean that there is no auto correlation in the data. but the height of strength is not as much as for others.5 0.0 r F 0.5 1.0 -1. which shows that though a positive relation exist between profitability and liquidity.627(a) .

0 0.8 1.2 0.8 b o r P 0. = 0.9% which mean that the relation is not significantly strong.5 0. That showed no any significant relation between the two variables.2 0.Histogram Dependent Variable: %age change in EBIT 2.0 0. as R2 is 12. Dev.0 r F 0. We also ran regression and F-stats for Dawood Hercules. Model Summary(b) .44E-16 Std.5 1.0 0. which is also clearly indicating that the liquidity is not a big consideration in Dawood Hercules.0 0.4 c e p x E 0.0 -0.866 N=5 Regression Standardized Residual Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1.0 -1.0 1.4 0.5 0. so that we should have better insight of the liquidity and profitability.0 1. Also adjusted R square is negative.6 0.6 m u C d e t 0.0 Observed Cum Prob DAWOOD HERCULES:Dawood Hercules has less affect of liquidity.5 Mean = 9.5 y c n e u q e1.

.33E-17 Std.633 Durbin-Watson 3.0 r F 0. = 0.359(a) .5 Mean = 8.666 . Error (Constant 36. Current Ratio b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Coefficients B Std.866 N=5 Regression Standardized Residual .359 -.Adjusted R Std.162 45. Error of R R Square Square the Estimate .936 Ratio a Dependent Variable: %age change in EBIT Standardized Coefficients Beta .5 1.553 Histogram Dependent Variable: %age change in EBIT 2.288 Model Df 1 3 Mean Square 901.0 1.648 4 a Predictors: (Constant).5 0.553(a) 7001.015 6100.0 0.0 -1.544 F .129 -.0 1.5 y c n e u q e1.466 .596 ) Current -14.5 0.09484 a Predictors: (Constant).015 2033.348 43.602 21.0 -0. Current Ratio b Dependent Variable: %age change in EBIT Model 1 ANOVA(b) Sum of Squares Regressi on Residual Total 901. Dev.443 Sig.834 -.

497 a Predictors: (Constant).522 F .002 -.307 292.0 0. we also analyzed this company by running regression and constructing ANOVA table. Current ratio b Dependent Variable: EBIt % age change .0 Observed Cum Prob ENGRO CHEMICALS:Engro Chemicals is surprisingly different from the rest of industry.2 0.307 585.2 0.047(a) .8 b o r P 0. but it did not show any indication which can prove strong relation between liquidity and profitability. Model Summary(b) Adjusted R R R Square Square . Error of the Estimate 17. Very low values of R and R 2 mean that the positive relation between CR and profitability has no any significance.045 Model df 1 2 Mean Square 1.6 0. The company has no significant effect of current ratio on profits.6 m u C d e t 0. .4 0.953(a) 586.0 0.0 0.Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1. For certainty.004 Sig.8 1. while analyzing for liquidity.10329 ANOVA(b) Sum of Squares Regressi on Residual Total 1.352 3 a Predictors: (Constant).4 c e p x E 0. Current ratio b Dependent Variable: EBIt % age change Model 1 Std.

018 a Predictors: (Constant). But positive value of beta (.0 0.898 ratio a Dependent Variable: EBIt % age Std.0 0.Coefficients(a) Unstandardized Coefficients B (Constan 27. but here in the fertilizer sector of Pakistan.2 0.183 Also Adjusted R square is negative.4 0. The Fouji Fertilizer is less dependent on the debt so this is a low leveraged firm.8 b o r P 0. Following model is giving clear indication that there is very low association (R2=.486) tells that an upward slope exist between variables. Leverage% b Dependent Variable: EBIT % age change Model 1 Std.79986 Durbin-Watson 2.0 0.433 change -. which tells that after the adjustment we don’t see any strong relation between profitability and leverage.8 1. Model Summary Adjusted R R R Square Square . so at .4 e p x E 0.067 .437 .6 m u C d e t c0.257 t) Current -.953 Normal P-P Plot of Regression Standardized Residual Dependent Variable: EBIt % age change 1. its contradictory to that. Error 28.322 13.962 -.2 0.236 -.047 Standardized Coefficients Beta .486(a) .0 Observed Cum Prob LINKAGE OF LEVERAGE WITH PROFITABILITY FAUJI FERTILIZERS:Even debt is the most dependent variable of today’s firms.236) between the two variables.6 0. Error of the Estimate 7.

708 .6 m u C d e t 0.0 r F 0.538 .0 1.0 -1.0 0. EBIT %age change Model 1 Durbin-Watson 1.486 .0 0.0 -0.least they have connection.866 N =5 Regression Standardized Residual Normal P-P Plot of Regression Standardized Residual Dependent Variable: EBIT % age change 1.0 0.5 0.0 1.998 109.81198 a Predictors: (Constant).8 1.2 0.4 c e p x E 0.653 .406 Histogram Dependent Variable: EBIT % age change 2.682 t) Leverag 1. Dev.0 0.964 . Coefficients Unstandardized Coefficients B Std.8 b o r P 0.808(a) .857 .454 .977 e% a Dependent Variable: EBIT % age change Standardized Coefficients Beta -. Error of R R Square Square the Estimate .4 0. = 0.5 Mean = -5.6 0.5 1.5 0.2 0.55E-16 Std.5 y c n e u q e1.906 1.0 Observed Cum Prob FAUJI FERTILIZERS BIN QASIM LIMITED:Model Summary Adjusted R Std. Error (Constan -93.

0 -1.6 m u C d e t 0.0 r F 0.000 . Dev.0 1.2 0.5 y c n e u q e1.b Dependent Variable: Leverage % The negative value of beta (-0. So even the theory is opposite to it.049 40. The results are surprising in this industry.0 1. discussion of strength of correlation is useless.535).098 95% Confidence Interval for B Lower Bound 68. leverage% b Dependent Variable: %age change in EBIT Model 1 Durbin-Watson 2. = 0.808 -2.8 b o r P 0.379 .866 N =5 0.014 .6 0.033 Upper Bound 71. Because there is no positive relation between two variables.5 1.5 0.4 0. but there is no dependence of profitability on leverage.063 .005 Histogram Dependent Variable: Levergae % Normal P-P Plot of Regression Standardized Residual 2. Error of R R Square Square the Estimate .4 c e p x E 0.80494 a Predictors: (Constant). There are some valid reasons for this.8 1.0 0.0 0.535(a) .600 . Unstandardized Coefficients B Std.1E-14 Std.634 Following table of coefficients shows a negative beta (-0.0 Dependent Variable: Levergae % 1.287 .2 0. which mean the debt and profitability are oppositely related. Error (Constant) 69. Coefficients .415 -.006 change a Dependent Variable: Levergae % Coefficients Standardized Coefficients Beta 151.137 -.0 -0.460 EBIT %age -.5 0.808) in the following table indicates an inverse relationship between debt and profitability. we will discuss them later.5 Mean = 2.0 0.0 Regression Standardized Residual Observed Cum Prob DAWOOD HERCULES:Model Summary Adjusted R Std.

345 -.5 Mean = 2. which mean that the correlation is weak.5 0.5 0.Unstandardized Coefficients Standardized Coefficients B Std. .866 N=5 Regression Standardized Residual ENGRO CHEMICALS:Model Summary(b) Adjusted R Std.0 1. Dev.0 e r F 0.214 -1.261) indicates a positive relation between leverage and profitability.098 .470 nt) leverage -2.979 273.186 F .398 16. There are very low values of R2 and a negative value of adjusted R2.373 Model df 1 2 Mean Square 39.353 Histogram Dependent Variable: %age change in EBIT 2. Coefficients(a) Unstandardized Coefficients Standardized Coefficients .352 3 a Predictors: (Constant). Leverage b Dependent Variable: EBIt % age change Positive value of beta (0.574 2.535 % a Dependent Variable: %age change in EBIT 1.0 -1. Error of R R Square Square the Estimate . Leverage b Dependent Variable: EBIT % age change ANOVA(b) Model 1 Sum of Squares Regressi on Residual Total 39.5 y c n e u q1.5 1.146 Sig.926 67.261(a) .0 1.0 0. though not strongly. Engro’s profits are related to debt.739(a) 586.312 .0 -0. Error Beta (Consta 81.5E-16 Std.068 -. = 0.979 546.52835 a Predictors: (Constant).

321 .8 1.601 .830 Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases a 324 cells (100.383 nt) Leverag .816 N=4 b o r P 0. which is not significant for the hypothesis to be accepted. Sig. This is due to the low F-value.261 1.05.6 m u C d e t c0.2 0.5 0.739 We also constructed ANOVA table to see deeply.0 0.0 0.046 19 Df 289 289 1 Asymp.0 Dependent Variable: EBIt % age change 1. TEST OF ASSOCIATION USING CHI SQUARE:Chi-Square Tests Value 304. = 0.0 0.0 -1.868 26.4 0.6 u q e r F 0.0 -0. Results: .8 y c n e0. measured by current ratio has no significant effect on profitability.55E-17 Std.5 1.000 . Histogram Dependent Variable: EBIt % age change Normal P-P Plot of Regression Standardized Residual 1.2 0.0 Regression Standardized Residual Observed Cum Prob INDUSTRY ANALYSIS AND HYPOTHESIS TESTING H0: Liquidity.840 e a Dependent Variable: EBIt % age change Beta . Dev. yes.0 0. The minimum expected count is .4 0.4 e p x E 0.2 Mean = -5.B Std.8 0.383 .344 . that either the relation is really weak.6 0.0 0. The answer is.0%) have expected count less than 5. Error (Consta 15.261 .609 . (2-sided) .000( a) 106.

043 Sig.5 0 1 0.414 1851.8 1.2 -50 EBIT % age change ]ù¨Curre Äùï 2.94 2 2.07 5 10.34 -4 1.9 1. Current Ratio b Dependent Variable: %age change in EBIT Model 1 ANOVA(b) Sum of Squares Regressi on Residual 80.03 16 -26. Error of R R Square Square the Estimate .7 0.46 23.91 4 1.67 22.050(a) .6 0.414 Model Df 1 Mean Square 80.86 17 6 Total 31562.8 50 37.5 1.15 12 -30. .4 150 100 Current Ratio 61. 200 167.003 -.46 8 9 1.9 3 11.4 35.78 10.79 REGRESSION ANALYSIS:Model Summary(b) Adjusted R Std.07 32.07 14 15 2.6 18 1.8 1.Pearson chi square test rejects the above described null hypothesis.53 11 1. Current Ratio .1 17 6.45 3.99 1.03341 a Predictors: (Constant).837(a) 31481.04 6 3.1 0.056 43.54 19 46.2 13 1.874 F .53 10 1.2 39.17 7 3.28 18 0 a Predictors: (Constant).

Coefficients(a) Unstandardized Coefficients B Std. Error (Constant 28.208 . the hypothesis is rejected.972 N = 19 0 -2 -1 0 1 2 3 4 Re gression Standa rdiz ed Res idual No rm a l P -P P lo t of R eg re ss io n S tan dar dized R esid u a l Dep end e n t V ariab le: % a g e c h a ng e in E BIT 1 .8 1.480 24. due to insignificant value of F-stats.6 0.4 c e p x E 0.2 0. = 0. Dev.177 -.565 Ratio a Dependent Variable: %age change in EBIT Standardized Coefficients Beta 1.0 0.4 0.0 0.0 O bserved Cum P ro b .13E-16 Std.0 0.837 Histogram Dependent Variable: %age change in EBIT 6 5 y4 c n e u q3 e r F 2 1 Mean = -1.255 . Thus we can interpret that the fertilizer sector’s profitability is dependent upon liquidity measured by current ratio.2 0.6 m u C d e t 0.8 b o r P 0.197 ) Current -3.035 14.050 -.b Dependent Variable: %age change in EBIT Results: Running simple regression on the fertilizer industry.

TEST OF ASSOCIATION USING CHI SQUARE:200 150 EBIT% Change 100 50 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -50 LEVERAGE% EBIT % REGRESSION ANALYSIS:- .H0: Higher degree of leverage does not lead to change in profitability in fertilizer sector firms listed on KSE.

FAUJI FERTILIZERS .Coefficients(a) Unstandardized Coefficients B Std. Error (Constan 4.6 m u C d e t 0.4 c e p x E 0. but the positive values of R and beta mean that leverage effects the industry according to the theory.0 7 6 5 0.130 t) Leverage .813 . Histogram Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT Dependent Variable: %age change in EBIT 1.428 We shall reject the null hypothesis.153 26.0 0.159 .0 0. Thus the correlations are not strong enough.876 . Dev.4 0.6 0.2 0. LINKAGE OF MARKET PROFITABILTY PRICE PER SHARES WITH H0: MARKET PRICE PER SHARES has no significant effect on profitability.39E-17 Std.972 N = 19 b o r P 0. So the leverage is significant in increasing the profitability.8 y c n e4 u q e r F3 2 1 0 -2 -1 0 1 2 3 4 Mean = -1.8 1. = 0.524 % a Dependent Variable: %age change in EBIT Result: Standardized Coefficients Beta .426 .2 0.193 .0 Regression Standardized Residual Observed Cum Prob Results: The regression and chi square tests conclude that the fertilizer industry has positive association with debt in term of profitability.

352 3 Predictors: (Constant).768 546. .584 Model Df 1 2 Mean Square 39.53155 Predictors: (Constant).260(a) . the negative value of beta tells that the market price per share has no positive relation with profitability.292 F .740(a) Total 586.062 per share a Dependent Variable: EBIT % age change Std.260 -.843 .740 . Error of R R Square Square the Estimate .787 Market price -.FAUJI FERTILIZERS BIN QASIM DAWOOD HERCULES ENGRO CHEMICALS The model of regression is constructed for all the companies simultaneously. so it comes out that profitability is independent of market price per share. Model Summary (b) Adjusted R Std.381 . The values of R and R2 are very low.163 Standardized Coefficients Beta 1. Market price per share B Dependent Variable: EBIT % age change Coefficients (a) Unstandardized Coefficients B (Constant) 36. Looking at the coefficients. Error 30.146 Sig.355 .398 16. for these four fertilizer companies.193 -.768 273. Market price per share B Dependent Variable: EBIT % age change ANOVA (b) Model 1 Sum of Squares Regressi on Residual 39.068 -.

0 0.5 0.5 y c n e u q1.4 c e p x E 0. LINKAGE OF GDP WITH PROFITABILTY H0: GDP has no significant effect on profitability. increases the profits of fertilizer companies. FAUJI FERTILIZERS:Positive value of beta indicates relationship of profitability and GDP. Though the .0 Mean = 1.0 -0.4 0.6 0.0 1.2 0.0 0.8 b o r P 0. Dev.0 0.6 m u C d e t 0.0 0. Increasing the GDP.816 N=4 Regression Standardized Residual Normal P-P Plot of Regression Standardized Residual Dependent Variable: EBIt % age change 1. = 0.0 -1.8 1.5 0.2 0.0 e r F 0.0 Observed Cum Prob Hence we concluded that there is no significant relationship between profits before taxes and interests and market price per share.5 1.5 -1.Histogram Dependent Variable: EBIt % age change 2.94E-16 Std.

141 . Model Summary (b) Adjusted R R R Square Square .258 a Dependent Variable: %age change in EBIT Normal P-P Plot of Regression Standardized Residual Histogram Dependent Variable: %age change in EBIT Dependent Variable: %age change in EBIT 1.771 .0 -0.048 4 a Predictors: (Constant). ANOVA(b) Sum of Squares Regressi on Residual Total 15.5 Mean = 1. GDP b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Coefficients B (Consta nt) GDP 2.8 1.462 .0 0. = 0.778 Std.relationship is not very strong but it exists.258(a) . Error of the Estimate 8.676(a) 239.62542 ANOVA table shows that the significance of relation is very weak.0 e r F 0.665 Standardized Coefficients Beta .854 74.4 e p x E 0.245 a Predictors: (Constant). Error 19.5 0.854 223.5 b o r P 0. .2 0.6 m u C d e t c0.066 -. GDP b Dependent Variable: %age change in EBIT Model 1 Std.213 Sig.0 0.5 y c n e u q1. that GDP is an indicator of increasing profits.4 0.5 1. .5 -1.0 1.0 Regression Standardized Residual Observed Cum Prob The trend can be seen from the graph above.897 .866 N=5 0.194 Model df 1 3 Mean Square 15.8 1.0 2.0 -1.0 0.6 0.676 1.0 0.2 0.398 F .279 2.25E-16 Std. Dev.

8 1.204(a) . we can conclude that the relation is not as much stronger as should be. DAWOOD HERCULES:- . Error 178. But the relation is not so significant due to negative value of adjusted R2 and low value of F in the ANOVA table. The positive value of beta (.204 a Dependent Variable: %age change in EBIT Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1. GDP b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Coefficients B (Consta nt) GDP -14.4 0.938 .743 9. GDP b Dependent Variable: %age change in EBIT Model 1 Fouji Fertilizer BIN Qasim also has positive relation with GDP. Error of R R Square Square the Estimate .979 Std.360 .204) means the profitability is dependent upon GDP.240 Model df 1 Mean Square 795.286 F .466 Standardized Coefficients Beta -.2 0.278 78.0 2007 -50 Observed Cum Prob 2006 2005 2004 2003 If we see the graph.0 0.4 e p x E 0.6 0.743(a) 18381. .8 b o r P 0.85 3 8 Total 19177. ANOVA(b) Sum of Squares Regressi on Residual 795.144 .130 Sig.240 6127.041 -.084 .27698 a Predictors: (Constant).6 m u C d e t c0.FAUJI FERTILIZERS BIN QASIM:Model Summary(b) Adjusted R Std.2 0.09 4 9 a Predictors: (Constant).0 GDP AND EBIT 200 150 % of sales 100 GDP 50 0 EBIT 0.058 25.0 0.

549 .002 Standardized Coefficients Beta -.301 Sig. GDP b Dependent Variable: %age change in EBIT The value of F is not so significant that we can conclude a strong relationship between the two variables.621(a) 7001. Coefficients(a) Unstandardized Coefficients B (Consta nt) GDP -45.6 0.060 F .Model Summary(b) Adjusted R Std.05497 a Predictors: (Constant).793 . .0 0.4 c e p x E 0.116 14.6 m u C d e t 0.621 8.302(a) .467 6363. ANOVA(b) Sum of Squares Regressi on Residual Total 638.181 Model df 1 3 Mean Square 638.0 Observed Cum Prob . Error 105.0 0.091 -.648 4 a Predictors: (Constant).2 0.437 .692 .870 Std.467 2121.302 a Dependent Variable: %age change in EBIT Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1. GDP b Dependent Variable: %age change in EBIT Model 1 Dawood Hercules has a positive and greater value of beta than that of previous.2 0.8 1. Error of R R Square Square the Estimate .4 0.0 0.8 b o r P 0. Mean there is positive slope between GDP and profitability of Dawood Hercules.212 46.

756 . ANOVA (b) Sum of Squares Regressi on Residual Total 443. but the positive value of R and beta cannot be ignored so easily. Model Summary (b) Adjusted R R R Square Square .195 Sig.659 Std. ENGRO CHEMICALS: Engro Chemicals is strongly correlated with GDP. The very high value of R and beta (0.869(a) .554 F 6.869) mean a positive slope between profitability and GDP.45896 While we constructed ANOVA table.6%) and adjusted R2 are both consistent with the relationship. GDP b Dependent Variable: EBIT % age change Model 1 Std. GDP B Dependent Variable: EBIT % age change Coefficients (a) Unstandardized Coefficients B (Consta nt) -61.749 .244 71.255 Standardized Coefficients Beta -1.244 143.352 3 a Predictors: (Constant).108 Model Df 1 2 Mean Square 443. Error 35.GDP AND EBIT 200 150 % of sales 100 GDP 50 0 2007 -50 2006 2005 2004 2003 EBIT Looking at the graph we cannot conclude a relationship. Error of the Estimate 8. .634 a Predictors: (Constant). we see that the value of F is significantly large indicating strong relationship between profitability and GDP. The value of R2 (75.222 .131(a) 586.

0 Observed Cum Prob GDP AND EBIT 45 40 35 30 25 20 15 10 5 0 2007 2006 2005 2004 2003 % of sales GDP EBIT From the graph. Model Summary(b) .4 0. FAUJI FERTILIZERS:The relation between GNP and EBIT (profitability) is not much significant.131 Normal P-P Plot of Regression Standardized Residual Dependent Variable: EBIt % age change 1.4 e p x E 0.0 0.0 0.0 0.869 2. that the fluctuations in profitability are connected to the GDP. The values of R and R2 are of no use that the relation is inverse between the two variables.070). The reason is negative value of beta (-0. the results can be interpreted.489 .GDP 11.6 0.8 1.6 m u C d e t c0.576 4.2 0.2 0.8 b o r P 0. LINKAGE OF GNP WITH PROFITABILTY H0: GNP has no significant effect on profitability.651 A Dependent Variable: EBIT % age change .

297 F . GNP b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Coefficients B (Consta nt) GNP 15.671 .Adjusted R Std.469 -.070 a Dependent Variable: %age change in EBIT 25 20 15 GDP EBIT %AGE CHANGE 10 5 0 2007 2006 2005 2004 2003 .158 79.005 -.911(a) 239.015 Sig. ANOVA(b) Sum of Squares Regressi on Residual Total 1. GNP b Dependent Variable: %age change in EBIT Model 1 ANOVA table also does not give any strong relation between two variables as the F value is very low.624 -.559 4. Error 33. .048 4 a Predictors: (Constant). Error of R R Square Square the Estimate .121 .911 -.890 Model df 1 3 Mean Square 1.441 Standardized Coefficients Beta .158 237.692 Std.070(a) .90487 a Predictors: (Constant).327 8.

4 c e p x E 0. Model Summary(b) Adjusted R Std.161 Sig.225 Std.8 b o r P 0.96 3 6066. GNP b Dependent Variable: %age change in EBIT Model 1 ANOVA table gives very low F-value.137 Model df 1 Mean Square 976.6 m u C d e t 0.8 1.715(a) 18200.6 0.2 0.987 2 Total 19177.563 -.450 -. insisting to not accept the correlation between the variables.0 Observed Cum Prob The insignificance can be seen in the above graph between EBIT and GNP.137 F . for Fouji Fertilizer. GNP b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Standardized Coefficients Coefficients B (Consta nt) GNP 164. indicating no significant relation between two variables.0 0.226 Beta .562 -16. Error 292.89087 a Predictors: (Constant).401 .09 4 9 a Predictors: (Constant).613 . ANOVA(b) Sum of Squares Regressi on Residual 976. FAUJI FERTILIZERS BIN QASIM:The value of beta is negative again. so the relation is inverse between GNP and EBIT.2 0.265 77.051 -.Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1.715 .511 40.0 0. . Adjusted R2 is also negative.4 0.226(a) . Error of R R Square Square the Estimate .0 0.

0 Observed Cum Prob GNP AND EBIT 200 150 % of sales 100 GNP 50 0 2007 -50 2006 2005 2004 2003 EBIT The graph tells the opposite fluctuations among the two variables.4 0.0 0.648 4 a Predictors: (Constant).4 c e p x E 0.64856 The negative beta value (-.8 b o r P 0.0 0.507) tells that the variables are again inversely related. ANOVA(b) Sum of Squares Regressi on Residual Total 1797.841 1734.507(a) .009 a Predictors: (Constant). So apparently there is no relationship between EBIT and GNP. GNP b Dependent Variable: %age change in EBIT Model 1 Std.807 Model df 1 3 Mean Square 1797.2 0. GNP b Dependent Variable: %age change in EBIT .8 1.0 0.6 m u C d e t 0.384(a) 7001. Error of the Estimate 41.257 .036 Sig.841 5203.6 0. DAWOOD HERCULES:Model Summary (b) Adjusted R R R Square Square . indicating weak relationship.602 F 1.2 0. .a Dependent Variable: %age change in EBIT Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1.

018 .352 a Predictors: (Constant).514 Sig.638 166.638 333.146 a Predictors: (Constant).360 .713 Model df 1 2 3 Mean Square 252.719 Std. Error of the Estimate 12.ANOVA is also unable to build any significant relation between two variables.019 21. Error 156.079 -1.344(a) 586.507 a Dependent Variable: %age change in EBIT GNP AND EBIT 200 150 % of sales 100 GNP 50 0 2007 -50 2006 2005 2004 2003 EBIT The graph is again oppositely sketched.629 -.91730 Engro is positively correlated with GNP. in term of profitability. Coefficients(a) Unstandardized Coefficients B (Consta nt) GNP 168.431 . GNP .656(a) .407 Standardized Coefficients Beta 1. so no direct relationship of profitability on GNP. The significance is strengthened by large and significant value of F in ANOVA table. GNP B Dependent Variable: EBIT % age change Model 1 Std. like in GDP. ANOVA (b) Sum of Squares Regressi on Residual Total 252.384 -22.857 F 1. . ENGRO CHEMICALS:Model Summary(b) Adjusted R R R Square Square .

6 m u C d e t 0.656 1.4 c e p x E 0.B Dependent Variable: EBIT % age change Unstandardized Coefficients B (Consta nt) GNP -34.900 8.827 a Dependent Variable: EBIT % age change Normal P-P Plot of Regression Standardized Residual Dependent Variable: EBIt % age change 1.401 6.557 .8 1.191 Coefficients (a) Standardized Coefficients Beta -.4 0.0 0.0 0. They are along the same .0 0.8 b o r P 0.0 Observed Cum Prob GNP AND EBIT 45 40 35 30 25 20 15 10 5 0 2007 2006 2005 2004 2003 % of sales GNP EBIT The fluctuations in the graph can be noticed.699 .6 0.2 0. Error 48.344 Std.2 0.230 .

352 t) MKT . Error (Constan -20.205(a) 239.465 . Error of the Estimate 6.169 PRICE a Dependent Variable: %age change in EBIT Standardized Coefficients Beta -1.655 F 2. FAUJI FERTILIZERS:There is very strong relation between growth in revenues and profitability.083 127.604 Sig.083 42.205 .proportion.286 a Predictors: (Constant).614 . .682 1.023 .682(a) . giving strong relationship between GNP and EBIT. MKT PRICE b Dependent Variable: %age change in EBIT The value of F-stats is also significantly high that we can easily conclude the strong relationship between the two variables.965 Model df 1 3 Mean Square 111.823 20.273 .53108 ANOVA (b) Sum of Squares Regressi on Residual Total 111. The large values of R and adjusted R2 are clear indications that the profits are dependent upon change in revenues. LINKAGE OF PROFITABILITY: GROWTH IN REVENUE WITH H0: Growth in Revenues has no significant effect on profitability.382 .048 4 a Predictors: (Constant). Coefficients(a) Unstandardized Coefficients B Std. Model Summary (b) Adjusted R R R Square Square . MKT PRICE b Dependent Variable: %age change in EBIT Model 1 Std.

0 0.5 1.4 c e p x E 0.0 0.2 0.0 -1.0 1.2 0.8 1.0 -0. = 0. ANOVA (b) Sum of Squares 18461.66E-16 Std.400 Sig.950 15. Error of R R Square Square the Estimate .5 y c n e u q e1.536 238.0 r F 0.6 0. GROWTH IN REVENUES b Dependent Variable: %age change in EBIT Model 1 Fauji Fertilizer Bin Qasim is also strongly correlated with Revenues in term of profitability.963 .866 N =5 Regression Standardized Residual Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1.0 0.5 0.44412 a Predictors: (Constant). Dev.0 0. due to very strong R values (98.Histogram Dependent Variable: %age change in EBIT 2.981(a) .5 0. .6 m u C d e t 0.0 Observed Cum Prob FAUJI FERTILIZERS BIN QASIM:Model Summary(b) Adjusted R Std.1%).8 b o r P 0.521 F 77.4 0.003(a) .563 Model Regressi on Residual df 1 3 Mean Square 18461.0 Mean = 6.53 6 715.

2 0.6 0.798 .0 0.19177.6 m u C d e t 0.4 c e p x E 0.003 Total Normal P-P Plot of Regression Standardized Residual Dependent Variable: %age change in EBIT 1.433 GROWTH IN 1.146 Standardized Coefficients Beta .0 Observed Cum Prob Growth in ReVenue AND EBIT 200 150 % of sales 100 50 0 2007 -50 2006 2005 2004 2003 GROWTH IN REVENUES % EBIT Looking at the graph.0 0.498 . we can see the strong relation between two variables. The R value is high which shows strong correlation.0 0. Error 8. .283 REVENUES a Dependent Variable: %age change in EBIT Std.2 0.09 4 9 a Predictors: (Constant).768 .4 0.373 . DAWOOD HERCULES:The profitability of Dawood Hercules is strongly dependent upon the change in revenues. GROWTH IN REVENUES b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Coefficients B (Constant) 6.8 1.981 8.8 b o r P 0.

(a) 7001. Growth in revenues AND EBIT 200 150 % of sales 100 50 0 2007 -50 2006 2005 2004 2003 Growth in Revenues EBIT . Error . 1.000 F .000 REVENUES % a Dependent Variable: %age change Std.000 1.000 GROWTH IN 1. . . Sig.648 .648 4 a Predictors: (Constant).00000 a Predictors: (Constant).648 . Error of R R Square Square the Estimate 1.000(a) 1. .000 .000 Model df 1 3 Mean Square 7001.Model Summary (b) Adjusted R Std.000 .000 in EBIT Standardized Coefficients Beta .000 . GROWTH IN REVENUES % b Dependent Variable: %age change in EBIT Coefficients(a) Unstandardized Coefficients B (Constant) . GROWTH IN REVENUES % b Dependent Variable: %age change in EBIT Model 1 ANOVA(b) Sum of Squares Regressi on Residual Total 7001.

5 -1.846 Growth in .5 y c n e u q1.0 0. Coefficients(a) Unstandardized Coefficients B Std.167 Sig.294 revenues a Dependent Variable: EBIT % age change Standardized Coefficients Beta 2.The graph also tells strong association between profitability and growth in revenues.5 0.237 270.409 .722(a) 586.0 Mean = 2. Error of R R Square Square the Estimate .0 -1. Growth in revenues B Dependent Variable: EBIT % age change Model 1 Though the relationship is direct due to positive values of R and beta.0 e r F 0. Dev.44862 a Predictors: (Constant).237 541.5 0.78E-17 Std. ANOVA(b) Sum of Squares Regressi on Residual Total 45.722 Histogram Dependent Variable: EBIt % age change 2. Error (Constant) 24.077 -.112 .120 8.5 1. = 0.0 -0.120 .278 . ENGRO CHEMICALS:Model Summary (b) Adjusted R Std. Growth in revenues b Dependent Variable: EBIT % age change The F-value is not as highly significant as in the case of other companies.0 1. but the strength is not as high as in the other company case.352 3 a Predictors: (Constant).384 16.727 . .114 Model df 1 2 Mean Square 45.816 N=4 Regression Standardized Residual .278(a) .557 F .

leverage does not significantly affect the profitability of firm. 15.Liquidity has statistically significant positive effect on the profitability of fertilizer industry.GDP of Pakistan has statistically significant effect on the profitability of the firms in Fertilizer Industry of Pakistan.GNP of country has profitability of firms.Year to year Growth in Revenues has significant effect on the profitability of firms in Fertilizer Industry of Pakistan 18.Average market Price per Share has no significant effect on profitability of fertilizer industry.In fertilizer sector.CONCLUSION The four firms are analyzed in our study of fertilizer sector of Pakistan. significantly positive effect on the 19. 17. 14. We came with following results. 16. .

instead they take money in advance. So their liquidity is high. we didn’t use the quick ratio along with current ratio.The reason for above said implications is simple. The fertilizer sector is a selling sector like automobile industry. Because this is a chemical industry. that the current ratio and quick ratios are almost same.After having deep insight of the fertilizer sector. Whatever they produce is must be sold because of higher demand. and the profits are not highly related to the leverage. the corporations and financial institutes are moving toward debt financing to be saved against government taxes. as per statistical analysis. . But contrary to this all. we see that the sector keeps high level of liquidity. the fertilizer sector in Pakistan is mostly not depending upon it. and all chemical industries keep high liquidity. So they don’t have high level of receivables. Because the chemicals used in the production cannot be acquired once in a year due to their vulnerability to expire. 21. So they don’t have any risk in the business.We came with another finding.KEY FINDINGS 20. 23. So they have to buy on regular basis.All over the world. 22. Which simply mean that they don’t have high inventory piled up? That is why.

com .engro.allbusiness.org/pubs www.pakistaneconomist.org.goliath.REFERENCES: http://wiki.ffc.dawoodhercules.com www.com www.com.ffbl.fertilizer.org www.pk www.ecnext.com www.com www.answers.levy.com www.sbp.com www.pk www.

Sign up to vote on this title
UsefulNot useful