In in the micro and macro levels

In any investment, investors areseeking to obtain returns and trying to get information from the future amountof profitability of companies. One of the most common methods to examinefinancial information is to prepare financial ratios.

This study aims to find thevariables with the greatest prospective to explain the profitability. In fact,the classification of determining factors of profitability and providing anappropriate model help the investors in optimal allocation of resources in themicro and macro levels .The investor, whether personal stockholders or thefirms, are in need of a model to assess the performance of the companies anddetermine their expected profitability. Financial ratios play an important partin the development of a company with an effective way, if a company is notmaintaining financial ratio efficiently it will directly hit the performance ofthe company, different financial ratios like Profitability ratios, liquidityratios, Gearing ratio and yield ratio have a major role in judgment of theprogress of a company by the new investor and existing investors.

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They canjudge the company effectively and get the knowledge of a company truly. The pharmaceutical industry in Pakistan has grown duringthe last few decades. At the time of  the independence of Pakistan in1947, there were few production units in the country. Currently Pakistan hasmore than 800 large volume pharmaceutical formulation units, including thoseoperated by 25 multinationals present in the country.

The PakistanPharmaceutical Industry meets around 90% of the country’s demand of finisheddosage forms and 4% of Activeingredients. Specialized finished dosage forms suchas soft gelatin capsules, parenteral fat emulsions and Metered-dose inhalers continueto be imported. There are only a few bulk drug Activeingredient producers and Pakistan mainly depends onimports of bulk drugs for its formulation needs resulting in frequent drugshortages. Political disturbances and allegations of under-invoicing addto the uncertainty of imports and clashes with the customs and tax authoritiesare common.The National pharmacyindustry has shown growth over the years, particularly over the last decade.The industry is trying to upgrade itself and today the majority industry isfollowing local Good Manufacturing Practices (GMP) laws, with a few inaccordance with international guidance. Currently the industry has the capacityto manufacture a mixture of traditional products ranging from simple pills tocapsules, ointments and syrups.

 Financial ratio studyalso provides help to the investor who are investing in a different companythrough the stock exchange. Because through the proper judgment of these ratio, investor can sale and purchase the share from the stock exchange efficientlyas compare to the other investor who have a less knowledge of the companyfinancial ratio or those investor who are investing in a company without thestudy of the financial ratios properly. Financial ratio also the major part ofthe company financial statement , because without the proper suggestion ofthese financial ratio the company’s financial statement are not being able toshow how company is progressing currently. Therefore financial ratio have avery important role in the company and also it’s study help to find a new paththat will help the company as well as the new investor and existing investor toinvest in a company’s stock and invest directly with a very effective way ascompare to those investor that have a less awareness of the financial ratiostudy and those who are investing in a compare without the proper study of Allratios like Profitability.

 1.2Definition:According to Namazi and Rostami (2006) amongst the financial ratios, aconventional of market ratios occur for corporate performance valuation that investorsduring construction their investment decisions have particular care to it andthe most vital is earnings per share ratio (EPS) which shows earnings that thecompany has realized in a fiscal period for an ordinary share and often is usedto estimate the profitability and risk related with earning and also findingsabout stock prices.  1.3 Problem StatementTo find which financial ratios willhave magnifying impact on profitability   of pharmaceutical  industry ofPakistan.

In Pakistan pharmaceutical industry companies profit is deterioratingday by day in last few years’ .In fact many companies are facing severe loss.Out of the selected ratios analyzed here in the research, to determine whichone will have a major effect of company’s profitability in   pharmaceuticalindustry of   Pakistan.1.4 Research Questions·        Whatis the impact of earning per share ratio on return on asset?·        What is theimpact of earning per share ratio on return on equity?·         What is the impact of debt to equity ratio onreturn on asset?·         What is the impact of debt to equity ratio onreturn on equity?·         What is the impact of current ratio on returnon asset?·         What is the impact of current ratio on returnon equity?·         What is the impact of firm size on return onasset?·         What is the impact of firm size on return onequity?1.

5Research ObjectiveTheobjective of this research is to determine, is there any effect of financialratios on the profitability of companies in the pharmaceutical industry  of Pakistan. For this purpose sample has been selected from Karachi stockexchange.·        To analyze theimpact of earning per share ratio on return on equity.·        To analyze theimpact of earning per share ratio on return on asset.·        To evaluate the impactof debt to equity ratio on return on equity.·        To evaluate theimpact of debt to equity ratio on return on asset.·        To investigatethe impact of current ratio on return on equity.·        To investigatethe impact of current ratio on return on asset.·        To analyze theimpact of firm size on return on equity.·        To analyze theimpact of firm size on return on assets

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