Effects of Change in ROCE on EPS: Classical Representation of the Automobile (Assembly) Industry of Pakistan

Abstract

The study examines the impact of change in Return on Capital Employed (ROCE) on Earnings per Share (EPS) of the car assembly business in the Pakistani context. Provides a classic financial illustration of the company's performance. The analysis was based on firm-level panel data of Pakistan Suzuki Motor Company Limited, Honda Atlas Cars Pakistan Limited and Indus Motor Company Limited during the time period 2014–2024. In addition to using Return on Assets (ROA) as a mediating variable to capture the internal profitability transmission mechanism, the study uses correlation and multiple regression approaches to assess the direct influence of ROCE on EPS. Secondly, variations in time (year) are controlled, and company size (measured as the logarithm of total assets) and leverage (measured as debt-to-equity ratio) are included as control variables to capture the influence of financial structure and size of the companies. Improvements in capital efficiency are linked to higher shareholder returns, according to the empirical results, which show a positive and statistically significant association between ROCE and EPS. Moreover, the mediation study reveals that ROCE-EPS relationship is significantly mediated by ROA, which implies the importance of operational profitability in explaining the relationship better. The model has however, low explanatory power, implying that there are more internal and external factors that can influence EPS which were not fully covered in the research. The results corroborate the applicability of traditional financial ratios to interpret firm performance in emerging market situations.