The Effect of Leverage on Profitability of Pharmaceutical Companies

Abstract

The capital structure problem is important and because of the influence of leverage effect on return on equity. This paper aims to study the influence of financial leverage effect on company profitability, using financial data of three large companies from Romania, acting in pharmaceutical sector, in entire production-distribution chain. To carry out this study have been completed three stages: analyses of the profitability of the companies, analyses of the indebtedness and then the effect of leverage on return on equity, using data from 2008-2012 period. The conclusion that emerges in this study is that leverage effect is an important factor that influences the return on equity in function of degree of debts, but not entirely.

Keywords

• Profitability
• Return on assets
• Return on equity
• Leverage effect
• Pharmaceutical sector