DefinePK

Abstract

The purpose of this article is to identify useful financial ratios by using principal component analysis which are truly representative and significant for four industrial sectors in Pakistan named as chemical, sugar, cement and textile spinning sector. Even in the same countries, companies of different industries have different capital market and operational structure. Therefore, ratios which are found to be useful for one industrial sector may not be appropriate for other industrial sector. In this study data of 42 ratios collected from annual reports of the listed companies from 2013 to 2018. Principal component analysis used to identify useful ratios from 42 ratios. Results showed that 32 ratios identified from analysis which belongs to four industrial sectors. Seven ratios selected from chemical sector, eight selected from sugar sector, seven and ten respectively selected from cement and textile spinning sectors. Some ratios are common in two or three industrial sectors like Current assets to current liabilities is common in spinning and chemical sectors. Cash and bank to total assets are commonly extracted in textile spinning, cement and sugar sectors. Current liabilities to fixed assets and long term debt to total assets are common in textile and sugar sectors. Net profit to shareholder funds and sales to working capital are commonly selected in cement and chemical industry. Working capital to sales ratio selected both in sugar and chemical sectors. Other ratios are specific to their industrial sector.