The Influence of Moderate Leverage Impact of Liquidity Ratios on the Financial Performance of the Sugar Sector in Pakistan

Abstract

The research investigates the performance of the sugar sector in Pakistan with debt ratio, operating cash flow ratio, current ratio, quick ratio and firm age with moderate leverage impact on the financial performance of the Sugar sector. Focusing specifically on Pakistan, the study collected data on 25 sugar companies from 2012 to 2022. Secondary data was gathered from annual reports and the Pakistan Stock Exchange. When leverage is maintained at a moderate level, the connections between debt ratio and leverage and operating cash flow and leverage ratio prove statistically significant. These findings carry valuable insights within the context of the regression study, suggesting that the extent of business leverage plays a pivotal role in shaping the relationship between these variables and earnings per share (EPS). In contrast, factors such as current ratio and leverage, quick ratio with leverage ratio, and firm age with leverage ratio lack statistical significance at a moderate leverage ratio. The practical effects of certain financial ratios on earnings per share are excessively high debt ratios, which suggests a significant dependence on debt financing, which may result in higher interest costs and greater financial risk, which could lower EPS. In contrast, high current ratios, quick ratios, and strong operational cash flow ratios are often considered positive indications of EPS. In planning for the future, companies must find a middle ground between debt and equity financing, aiming for a sustainable debt ratio that doesn't weigh down earnings with excessive interest expenses. Boosting operating cash flow through efficient operations and careful working capital management takes precedence, positively impacting earnings per share. It's equally crucial to maintain robust current and quick ratios, ensuring short-term liquidity and financial stability, especially in uncertain economic climates. Regularly monitoring and strategically adjusting these financial ratios in line with growth objectives and risk tolerance is key for long-term EPS and shareholder value growth.