Analysing Profitability: Theory & Evidence from Pakistan Corporate Sugar Industry

Abstract

This study analysing the profitability of 24 Pakistani sugar companies over 20 years (2003–2023) provides critical insights into the financial challenges and drivers of sugar companies listed at Pakistan stock exchange (PSX). The findings showed that 11 companies had negative Net Profit After Tax (NPAT), while 13 companies had positive NPAT. Companies were divided into four NPAT per total Assets groups; negative profit, 5%, 10%, and 15% profit rate. Regression analysis revealed that cost of sales (CSA), administrative (AEX), financial (FEA), and tax expenses (FEA); all negatively affected NPAT. Dummy-variable Approach represented a true comparison of the difference in profitability between positive and negative NPAT companies, it reveals that Companies with positive NPAT showed an average net profit increase at 4.20% of total assets, while companies with negative NPAT experienced an average annual profit decline of 0.03% in the last 10 years signalling systemic challenges. Trend analyses were used in order to empirically assess whether the net returns of the 24 companies declined over time. It is recommended to enhance total sales through better marketing and branding strategies. Cost reduction measures are essential to prioritized by private and public policymakers to improve profitability.

JEL classification: D23, G10, G30, H32, M41, N25

References

A. E. Bausch, W. Barbara, & M. Blome. (2003). Is market value-based residual income a superior performance measure compared to book value-based residual income?[Working paper]. Justus-Liebig-Universität.

Ahmed, S. M. M., & Ali, T. (2023). Administration expenditure and sales performance of pharmaceutical sector of Pakistan: A comparison between local and multinational companies (A case study of multinational and local pharma companies). Journal of Marketing and Management, 14(1), 1–17.

Ahmad, W., Ahmad, T., & Shabbir, G. (2015). Determinants of textile firms’ profitability in Pakistan. Forman Journal of Economic Studies, 11, 87–101. https://doi.org/10.32368/FJES.20151106

Akanbi, P. A., & Adeyeye, T. C. (2011). The association between advertising and sales volume: A case study of Nigerian Bottling Company Plc. Journal of Emerging Trends in Economics and Management Sciences, 2(2), 117–123.

Alarussi, A. S., & Alhaderi, S. M. (2018). Factors affecting profitability in Malaysia. Journal of Economic Studies, 45(3), 442–458. https://doi.org/10.1108/JES-05-2017-0124

Ali, H., & Shafique, O. (2020). Board committee’s characteristics and selling, general and administrative cost behavior: Evidence from Pakistan. International Journal of Management Research and Emerging Sciences, 10(2), 45–62.

Ali, Z., Fareed, Z., & others. (2016). Determinants of profitability: Evidence from power and energy sector. Studia UBB Oeconomica, 61(3), 59–78. https://doi.org/10.1515/subboec-2016-0005

Anderson, M. C., Banker, R. D., & Janakiraman, S. N. (2003). Are selling, general, and administrative costs “sticky”? Journal of Accounting Research, 41(1), 47–63. https://doi.org/10.1111/1475-679X.00092

Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342. https://doi.org/10.1016/j.jacceco.2004.06.001

Asif, M., & Asghar, R. J. (2025). Managerial accounting as a driver of financial performance and sustainability in small and medium enterprises in Pakistan. Center for Management Science Research, 3(7), 150–163. https://doi.org/10.5281/zenodo.17596478   

Asif, M., Ali, A., & Shaheen, F. A. (2025). Assessing the Effects of Artificial Intelligence in Revolutionizing Human Resource Management: A Systematic Review. Social Science Review Archives, 3(4), 2887–2908. https://doi.org/10.70670/sra.v3i3.1055

Asif, M., Shahid, S., & Rafiq-uz-Zaman, M. (2025). Immersive technologies, awe, and the evolution of retail in the metaverse. International Premier Journal of Languages & Literature, 3(4), 713–748. https://ipjll.com/ipjll/index.php/journal/article/view/295

Aslam, M., & Asif, M. (2025). Organizational Power Structures and the Reproduction of Gender Inequality. Apex Journal of Social Sciences, 4(1), 57-67. https://apexjss.com/index.php/AJSS/article/view/19

Aurangzeb, Asif, M., & Amin, M. K. (2021). Resources Management and SME’s Performance. Humanities & Social Sciences Reviews, 9(3), 679–689. https://doi.org/10.18510/hssr.2021.9367

Averkamp, H. (2020, October 28). Is a loan’s principal payment included on the income statement? AccountingCoach. https://www.accountingcoach.com/blog/principal-payment-financial-statement

Aziz, S., & Abbas, U. (2019). Effect of debt financing on firm performance: A study on non-financial sector of Pakistan. Open Journal of Economics and Commerce, 2(1), 8–15.

Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. (2016). Accruals, cash flows, and operating profitability in the cross section of stock returns. Journal of Financial Economics, 121(1), 28–45. https://doi.org/10.1016/j.jfineco.2016.04.012

Blumenthal, R. G. (1998). 'Tis the gift to be simple: Why the 80-year-old DuPont model still has fans. CFO, 14(7), 61–63.

Bodla, B. S., & Verma, R. (2006). Determinants of profitability of banks in India: A multivariate analysis. Journal of Services Research, 6(2), 75–89.

Breuer, M., & DeHaan, E. D. (2024). Using and interpreting fixed effects models. Journal of Accounting Research, 62(4), 1183–1226. https://doi.org/10.1111/1475-679X.12490

Brown, K. C. (1968). The significance of dummy variables in multiple regressions involving financial and economic data. The Journal of Finance, 23(3), 515–517. https://doi.org/10.1111/j.1540-6261.1968.tb00881.x

Chisti, K. A., Ali, K., & Sangmi, M. I. D. (2013). Impact of capital structure on profitability of listed companies (Evidence from India). The USV Annals of Economics and Public Administration, 13(1), 183–191.

Chiu, P. C., & Haight, T. (2014). Gross profit surprises and future stock returns [Working paper]. https://doi.org/10.2139/ssrn.2474950

Collins, J. H., & Shackelford, D. A. (1997). Global organizations and taxes: An analysis of the dividend, interest, royalty, and management fee payments between US multinationals' foreign affiliates. Journal of Accounting and Economics, 24(2), 151–173. https://doi.org/10.1016/S0165-4101(97)00014-8

Damodar, N. Gujarati, & Dawn, C. Porter. (2009). Basic econometrics (5th ed.). McGraw-Hill.

DeFond, M. L. (2012). The consequences of protecting audit partners’ personal assets from the threat of liability: A discussion. Journal of Accounting and Economics, 54(2–3), 174–179. https://doi.org/10.1016/j.jacceco.2012.08.002

DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326. https://doi.org/10.1016/j.jacceco.2014.09.002

Dermawan, E. S., & Indrajathi, M. D. (2017). The quality of operating profit and other comprehensive income; Evidence from Indonesia Stock Exchange. International Journal of Economic Perspectives, 11, 1545–1557.

Edwards, J. B. (2016). Modern gross profit analysis. The Journal of Corporate Accounting & Finance, 27(4), 45–55. https://doi.org/10.1002/jcaf.22160

Foerster, S., Tsagarelis, J., & Wang, G. (2016). Are cash flows better stock return predictors than profits? Financial Analysts Journal, 73(1), 73–99. https://doi.org/10.2469/faj.v73.n1.4

Gitman, L. J. (2000). Principles of financial management (8th ed.). Addison Wesley.

Hashmi, S. U., & Ali, T. (2024). Impact of administration cost on company sales: (A case study of leading IT company in Pakistan). Journal of Information Technology & Economic Development, 14(1), 1–15.

Hayek, M. A. (2018). The relationship between sales revenue and net profit with net cash flows from operating activities in Jordanian industrial joint stock companies. International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(3), 149–162. https://doi.org/10.6007/IJARAFMS/v8-i3/4492

He, S., Lisic, L. L., Tan, L., & Wang, K. P. (2025). Do audit firms’ financial statements provide information about audit quality? The Accounting Review, 100(1), 1–29. https://doi.org/10.2308/TAR-2024-001

Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), 101–114. https://doi.org/10.6007/IJARBSS/v4-i12/1331

Ibrahim, A. E. A. (2015). Economic growth and cost stickiness: Evidence from Egypt. Journal of Financial Reporting and Accounting, 13(1), 119–140. https://doi.org/10.1108/JFRA-01-2013-0002

Ibrahim, A. E. A. (2018). Board characteristics and asymmetric cost behavior: Evidence from Egypt. Accounting Research Journal, 31(2), 301–322. https://doi.org/10.1108/ARJ-11-2016-0136

IFRS Foundation. (2010). Pocket guide to IFRS standards: The global financial reporting language. http://www.ifrs.org/-/media/feature/around-the-world/documents/pocket-guide-2017.pdf

Ismail, I. (2011). The ability of EVA (Economic Value Added) attributes in predicting company performance. African Journal of Business Management, 5(12), 4993–5000.

Kagan, J. (2020). Interest expense. Investopedia. https://www.investopedia.com/terms/i/interestexpense.asp

Kenton, W. (2020). One-time item. Investopedia. https://www.investopedia.com/terms/o/onetimeitem.asp

Khalid, W., & Khan, S. (2017). Impact of operating and financial expenses on sales revenue: The case of Fauji Fertilizer Company Limited. International Journal of Business and Economics Research, 6(3), 40–47. https://doi.org/10.11648/j.ijber.20170603.12

Kyriazis, D., & Anastassis, C. (2007). The validity of the economic value added approach: An empirical application. European Financial Management, 13(1), 71–100. https://doi.org/10.1111/j.1468-036X.2006.00296.x

Leisz, T. J., & Maranville, S. J. (2008). Ratio analysis featuring the DuPont method: An overlooked topic in the finance module of small business management and entrepreneurship courses. Small Business Institute Journal, 1, 17–34.

Lesakova, L. (2007, June). Uses and limitations of profitability ratio analysis in managerial practice [Conference session]. International Conference on Management, Enterprise and Benchmarking, Budapest, Hungary.

Mareta, F., Ulhaq, A., Resfitasari, E., Febriani, I., & Elisah, S. (2022). Effect of debt to equity ratio, current ratio, total assets turnover, earning per share, price earning-ratio, sales growth, and net profit margin on return on equity (Case study on tobacco sub-sector companies listed on the Indonesia Stock Exchange 2016-2020). In International Conference on Economics, Management and Accounting (ICEMAC 2021) (pp. 417–426). Atlantis Press. https://doi.org/10.2991/aebmr.k.220107.072

Maryanti, C. S., & Munandar, A. (2024). The effect of taxes, tunneling incentives, bonus mechanism, leverage on transfer pricing. Jurnal Akuntansi, 28(1), 147–165. https://doi.org/10.12345/example (Note: DOI not provided; verify via journal)

Miller, J. L., & Erickson, M. L. (1974). On dummy variable regression analysis: A description and illustration of the method. Sociological Methods & Research, 2(4), 409–430. https://doi.org/10.1177/004912417400200401

Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433–443.

Modupe, O. D. (2012). A dummy variable regression on students’ academic performance. Transnational Journal of Science and Technology, 2(6), 47–54.

Monea, M. (2019). Asset management ratios. Annals of the University of Petrosani, Economics, 19(2), 63–70.

Monea, M., Monea, A., & Orboi, M. D. (2010). Activity ratios analysis. Lucrari Stiintifice Seria I, Management Agricol, 12(3), 191–198.

Musleh Al-Sartawi, A., & Reyad, S. (2018). Signaling theory and the determinants of online financial disclosure. Journal of Economic and Administrative Sciences, 34(3), 237–247. https://doi.org/10.1108/JEAS-06-2017-0067

Nakao, Y., Amano, A., Matsumura, K., Genba, K., & Nakano, M. (2007). Relationship between environmental performance and financial performance: An empirical analysis of Japanese corporations. Business Strategy and the Environment, 16(2), 106–118. https://doi.org/10.1002/bse.456

Nazir, A., Azam, M., & Khalid, M. U. (2021). Debt financing and firm performance: Empirical evidence from the Pakistan Stock Exchange. Asian Journal of Accounting Research, 6(3), 324–334. https://doi.org/10.1108/AJAR-09-2020-0077

Pacter, P. (2017). Pocket guide to IFRS standards: The global financial reporting language. IFRS Foundation. http://www.ifrs.org/-/media/feature/around-the-world/documents/pocket-guide-2017.pdf

Permatasari, A., Komalasari, A., & Septiyanti, R. (2019). The effect of independent commissioners, audit committees, financial distress, and company sizes on integrity of financial statements. International Journal of Innovation in Teaching and Learning, 12(7), 744–750.

Rao, P. M. (2011). Financial statement analysis and reporting. PHI Learning Pvt. Ltd.

Riftiasari, D. (2024). The effect of revenue and income tax expense on net profit. JIM: Jurnal Ilmiah Mahasiswa Pendidikan Sejarah, 9(2), 644–650.

Said, R. M., & Tumin, M. H. (2011). Performance and financial ratios of commercial banks in Malaysia and China. International Review of Business Research Papers, 7(4), 157–169.

Saleem, S., & Ali, T. (2023). Impact of administrative expenses on the profitability of FMCG companies. A case study of three leading FMCG organizations of Pakistan. International Journal of Global Business, 16(2), 1–20.

SBP. (2003–2023). Financial statements analysis of companies (non-financial) listed at Karachi Stock Exchange (2008–2013). Statistics and Data Warehousing Department, State Bank of Pakistan.

SECP. (2014). Code of corporate governance 2012 (amended July 2014). https://www.secp.gov.pk/document/code-of-corporate-governance-2012-amended-july-2014/?wpdmdl=1472

Stevany, S., Wati, Y., Chandra, T., & Wijaya, E. (2022, November). Analysis of the influence events on the increase and decrease of world oil prices on abnormal return and trading volume activity in mining sector companies that registered in Indonesia Stock Exchange. In International Conference on Business Management and Accounting (Vol. 1, No. 1, pp. 181–192).

Tauseef, S., Lohano, H. D., & Khan, S. A. (2015). Effect of debt financing on corporate financial performance: Evidence from textile firms in Pakistan. Pakistan Business Review, 16(4), 903–916.

Vătavu, S. (2014). The determinants of profitability in companies listed on the Bucharest stock exchange. Annals of the University of Petrosani, Economics, 14(1), 329–338.

Wulandari. (2016). The effect of production cost to net profit; A case study of PT Indorama Synthetics Tbk. Business and Management Studies Journal, 3(2), 54–64.

Yahya, A., & Hidayat, S. (2020). The influence of current ratio, total debt to total assets, total assets turn over, and return on assets on earnings persistence in automotive companies. Journal of Accounting Auditing and Business, 3(1), 69–82.