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Impact of free cash flow on profitability of the firms in automobile sector of Germany

Mr. Usman Ali, Ms. Lida Ormal, Mr. Faizan Ahmad

Volume 1 Issue 1 | Jan 2018

DOI: 10.31841/kar1006

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Total Downloads: 18

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Abstract

The discourse objective of the study is to investigate the effect of free cash flow on the profitabil┬Čity of firms listed in automotive sector of Germany. The study adopted a descriptive survey that aimed at analyzing the effect. Furthermore, the population of the study consisted of dominant and large firms, for simple random sampling method was used and all the firms within the automotive industry had equal chance of being studied, but only 5 firms were comparatively identified for the purpose of study from the population available and notably the secondary data used for the study were extracted from the audited annual reports and financial statements of the firms listed under the automotive industry of Germany for the period of ten years (2007-2016). Consequently, the regression results indicated that there was a positive relationship between the free cash flows and profitability of listed firms. However, Leverage has an inverse insignificant impact on profitability (ROA) and evidence for this comes from testing the proxies (Leverage, Current asset, Firm size, Capital liquidity, Sales growth, FCF). The findings further denoted R-squared= 0.766504 which substantiates the regression model used for the study is a good predictor, and it explained 76.65% of the variation in profitability (ROA) of the firms.