Profitability and Its Determinants - An Empirical Analysis on Manufacturing Firm of Bangladesh

Abstract

Manufacturing sector is becoming one of the major growing sectors of Bangladesh by contributing on an average 15.2 percent of country's gross domestic product. The yearly growth rate of this sector is 10 percent from the last a few years. The evaluation and analysis of determinants of profitability are crucial for ensuring a healthy, solid, and stable manufacturing sector. The aim of the research paper is to empirically evaluate the relation of firm specific internal factors on the profitability of manufacturing firms of Bangladesh. The study has been done by using Random-effects (GLS) regression model on a sample of 50 manufacturing firms by covering 7 manufacturing industries during the year 2003 to 2012, resulting in a total no of observations of 500. The study uses three profitability measures return on asset return on equity and net profit after tax as dependent variables, six internal factors (firm size, debt ratio, sales growth, liquidity ratio, total asset turnover and financial leverage) as the independent variable. Analyzing the panel data using Random-effects (GLS) regression model we have found that profitability of firms is significantly influenced by debt ratio, liquidity, size, total asset turnover and financial leverage.