The impact of financial ratios on the financial performance of a chemical company

HALIMAHTON BORHAN AND ROZITA NAINA MOHAMED, UNIVERSITI TEKNOLOGI MARA, MALAYSIA
Purpose: This study aims to examine the impact of financial ratios on the financial performance of a chemical company: LyondellBasell Industries (LYB). Some selected ratios: current ratio (CR) and quick ratio (QR) represent the liquidity ratios, debt ratio (DR) and debt equity ratio (DTER) represent the leverage ratios, while operating profit margin (OPM) and net profit margin (NPM) represent the profitability ratios. LyondellBasell Industries faced financial problems after its merger and the financial performance of the company shrank to negative due to the world financial crisis. However, this company has bounced back after a year and is now the world’s third largest chemical company based on revenue.
Design/methodology/approach: The financial ratios were measured from 2004 to 2011, quarterly. A multiple regression model has been used and secondary data has been analyzed.
Findings: The results shows that CR, QR, DR and NPM have a positive relationship while DTER and OPM have a negative relationship with the company’s financial performance. Among the six ratios, current ratio, debt ratio and net profit margin show the highest significant impact on the company’s performance.
Keywords: Financial ratios, Financial performance, Liquidity ratios, Leverage ratios, Profitability ratios
Outlook Borhan_Mohamed.pdf
Outlook Borhan_Mohamed.pdf
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