It could be argued that, although the overall level of profitability was high in the beginning of the sixties, over the period the level began to fall and that this was one factor which contributed to the decline in private industrial investment in the second half of the sixties. Our aim in this chapter is therefore to measure profitability in the large-scale manufacturing sector in the sixties and see whether there was any appreciable change during the period under study. The study was carried out separately for West and East Pakistan.

This study is based on balance sheets of companies which were quoted on the Karachi Stock Exchange. Although the size of the sample in relation to the entire large scale manufacturing sector is not large (see Appendix C, table C.3) it is quite representative of the major industries. We decided to base our study for the period both for an all firm sample of quoted firms, and one based on a continuous firms sample. The latter was included since the all companies sample includes new companies which have either just been floated on the Stock Exchange or are still in the early stages of production, with the result that the profitability ratio is biased downwards. A comparison of overall profitability between West and East Pakistan is also given, as well as a discussion of the major industries, which helps explain movements in the aggregate series.

Indicators used

We have used the following three indicators of profitability in the manufacturing sector:

1. (i) Gross profits (minus interest)/net worth

2. (ii) Gross profits/net assets

3. […]