Impact of liquidity on profitability of commercial banks. The effect of liquidity management on profitability of. The objective of this paper is to scrutinize and compare the liquidity and profitability performances of five islamic banks in bangladesh in. The effects liquidity on profitability is analyzed using the regression analyses. In this depressed world financial scenario, islamic banking has emerged as a strong alternate financial system. Ratio analysis can be used to evaluate both profitability and liquidity. In any company analysis, the two major parameters for analysis are profitability and liquidity, which are the two important criteria for a company to have creditworthiness and have an increasing market capital and market share. Liquidity management has a considerable influence on company performance. Hence, it is important to keep a constant eye on the liquidity position of the company as without it the. Liquidity requirement of a firm depends on the peculiar nature of the firm and there is no specific rule on determining the optimal level of liquidity that a firm can maintain in order to ensure positive impact on its profitability. Limei chenga, takyi kwabena nsiah b, ofori charlesc, abraham lincoln ayisid abstract the aim of the research was to explore the influence of credit risk, operational risk, and liquidity risk effect on bank profitability. The study investigated effects of liquidity management on profitability of the12 quoted manufacturing companies in kenya. Analysis of liquidity position using financial ratios.
Pdf liquidity management has a considerable influence on company performance. Credit risk, operational risk, liquidity risk on profitability. Using correlation and regression analysis the study found significant negative relation between the firms profitability and its liquidity level, as measured by current. In france, bank liquidity is monitored on the basis of a liquidity ratio. The relationship between liquidity and profitability of. The analysis towards liquidity ratio and profitability on. The study was carried on fifteen deposit money banks in nigeria and covered a panel data of 2010 to 2012. V of gross profit ratio for select steel companies companyyear sail tata bhushan visa jsw 20102011 35. Liquidity ratio overview, types, importance, example. The liquidity management represents the variables of the current.
Pdf the relationship between profitability and liquidity. Only increased use of liquidity forecasting and shortterm financing during financial crisis had a positive impact on roa. Abstract this study aims at investigating the relationship between liquidity and profitability of commercial banks in pakistan. It was found that for the period 20052010, both the liquidity and the profitability of the listed banks were declining.
Comparative study of profitability and liquidity analysis. The study is conduct on year of 2017 and it uses the balance sheet, profit and loss account, profit and loss appropriate account, cash flow of nibl and pbl to calculate the ratio for the purpose of analysis of liquidity position of these two banks. Analysis of liquidity, solvency and profitability of select. A study on profitability and solvency position of nabil. A study of relationship between liquidity and profitability. This study started from the assumption that liquidity and profitability are issues of significant impact on companies stability and development.
Overall, the findings suggested that the adaptation of liquidity strategies do not have a significant impact on roa. This study was carried out to examine the liquidity profitability trade off of deposit money banks in nigeria. The impact of liquidity on profitability of some selected. The main liquidity ratio was regressed on the profitability ratio. According to assaf neto 2003, the liquid assets are usually less profitable than. Multiple correlations among liquidity and profitability ratios are shown here. Financial stability issues lie precisely at this liquidity profitability nexus. Eljelly, a 2004 examined the relation between profitability and liquidity measured by current ratio and cash gap cash conversion cycle on a sample of joint stock companies in saudi arabia using correlation and regression analysis. Rate of return, capital, investment, liquidity, policy, leverage, finance, resources. The topics discussed in these slides are liquidity ratios, profitability ratios, capital structure ratios, debt equity ratios. Pdf liquidity and profitability analysis of nonfinancial entities. Only increased use of liquidity forecasting and shortterm financing during financial crisis had a. Velnampy, journalresearch journal of finance and accounting, year2014, volume5, pages163170.
The data has found to be covering period 20122016 commercial banks in nepal. Impact of liquidity on profitability of commercial banks in pakistan. The effect of profitability, liquidity, leverage and firm. By analyzing secondary financial company data, this. Liquidity means ones ability to meet claims and obligations as and when they become due. Analysis of financial statement approach by rafiq ahmad quaid. While most business owners will pore over their companys financial statements, which is a good start, its not enough. The above mentioned ratios have been compared and analysed based on general norms standards available in literature to understand whether the sample units have been. A study on profitability and solvency position of nabil bank ltd. The impact of liquidity, profitability, activity and solvency ratio on change in earnings lutfi baraja, eka agfa yosya 2 introduction changes in earnings are an instrument to measure the companys business activity performance. Liquidity and profitability analysis on the romanian. Liquidity, solvency and profitability analysis using cash.
While profitability ratio is concern with relative profitability and efficiency of utilization. Liquidity and profitability are two very important aspects of the banking business. Impact of liquidity on profitability of commercial banks in. A nexus between liquidity profitability tradeoff for working capital management in nigerias manufacturing sector. Introduction liquidity and profitability has got tremendous importance in the corporate world. The key difference between profitability and liquidity is that while profitability is the degree to which the company earns a profit, liquidity is the ability to swiftly convert assets into cash. Understanding how to leverage liquidity and profitability to evaluate and improve your business is a critical piece of effective financial analysis. The relationship between liquidity and profitability has become an important issue among any organization. It is all about managing current assets and current liabilities in such a way so as to maximize profitability.
The relationship between liquidity and profitability in. Kajananthan, lecturer probationary, department of commerce, faculty of management studies and commerce, university of jaffna. Difference between profitability and liquidity compare the. Ramakrishnaiah 2011 profitability analysis measures how a firm will is performing in terms of its ability to generate profits. Feb 20, 2017 liquidity can be seen as a major contributor to longterm profitability. In order to scan the performances, this study highlights on different standards of liquidity and profitability measurements logical to islamic philosophy. The impact of liquidity on profitability of commercial banks. Proceedings of 31st the iier international conference, bangkok, thailand, 2nd aug. This is a very useful measure of comparison within an industry. Impact of liquidity management on profitability revista espacios. Profitability vs liquidity top 6 differences to learn. There are many theories demonstrate the link between liquidity and profitability of the banks.
Contingency theory contingency theory researchers use to draw connections moderate dividend policy in each of profitability, liquidity, leverage, and firm growth to corporate value. Deloof 2003 using cash conversion cycle to study the effect of liquidity on profitability. Profitability is also a degree of how well the company is generating margins from its business. Liquidity and profitability ratio analysis dashboard ppt. The effect of profitability and liquidity on audit. The higher the ratio the greater the margin of safety for shortterm creditors current ratio. Liquidity and profitability analysis on the romanian listed.
Both descriptive and inferential data tools to analyze the data were used. Liquidity management, profitability, commercial banks, roa, india. The impact of liquidity on profitability of commercial. Liquidity ratio is used to judge the ability of a firm to meet its short term maturing obligations. European journal of business and management, issn 2222 1905, issn 22222839, vol. Pdf abstract the study is to analysis the effects of liquidity, profitability and risk of listed food, beverage and tobacco companies on colombo stock. Pdf this paper tries to observe the liquidity position and the profitability of delta brac housing finance corporation ltd. The factors that are considered in this study as variables are profitability roa i.
Comparative study of profitability and liquidity analysis of. The estimated relationship between liquid assets and bank profitability was as expected. The research result that has been done can be seen from the results of the liquidity analysis showing the current ratio, quick ratio and cash ratio look good. Review article liquidity and profitability study of various. According to ikatan akuntan indonesia 2012, net income profit is often used as a performance measure or basis for other measures such as return on investment or.
The aim of this paper is to thoroughly evaluate the development of bank profitability and liquidity in the polish banking sector and to analyze the link between profitability and liquidity ratios with the use of correlation analysis over the period 200720. Pdf liquidity and profitability analysis of nonfinancial. Abstract the major indicators of the financial performance of corporate entities are liquidity and profitability. While most business owners will pore over their companys financial statements, which is a good start, its not enough to adequately assess and forecast performance. Researchers conducted research in on banking sector of united states and proposed that more liquidity is typically costly for banks, signifying that more liquidity cuts profitability of the banks. The issue of liquidity profitability trade off is well documented in the literature. They found a negative relationship between profitability and liquidity. By analyzing secondary financial company data, this paper seeks to assess the correlation between liquidity and profitability. Pdf the impact of liquidity management on profitability. This conclusion was also regarded among others, by zariyawati, annuar, taufiq and rahim 23. The correlation and regression analysis were used with the help of ols technique to determined parameters. They are mainly used by external analysts to determine various aspects of a business, such as its profitability, liquidity, and solvency. Liquidity, profitability, descriptive statistics, correlation, regression analysis 1.
Its growth is not restricted to the muslim societies but islamic financial products are also gaining popularity among nonmuslim countries. A study of relationship between liquidity and profitability of standard charterd bank pakistan. The study has used arithmetic mean, standard deviation and simple regression analysis on the data of past eight years. Customers, lenders and suppliers are most interested in current liquidity, but also focus on overall pretax profitability and net worth of the company which result of future liquidity. However, hirigoyen 1985 argues that over the medium and long run the relationship between liquidity and profitability could become positive, in the sense that a low liquidity would result in a lower profitability due to greater need loans, and. Again, it was also found that there was a very weak positive relationship between the liquidity and the profitability of the listed banks in ghana. Analysis of liquidity, solvency and profitability of. Liquidity refers to the management of current assets and current liabilities of a company. This statement was verified for instance by deloof 3 who used cash conversion period to study the impact of liquidity on profitability while samiloglu and demirgunes 22 employed account receivable conversion period, inventory. The impact of liquidity, profitability, activity and solvency ratio on change in earnings lutfi baraja, eka agfa yosya 4 effect on changes in earnings. The effect of profitability, page 1 the effect of profitability and liquidity on audit opinions. Ryu metropolitan state university of denver gregory clifton metropolitan state university of denver chulyoung roh lehman collegecuny abstract. Liquidity is perceived as the debt paying ability of going concern.
Profitability vs liquidity needs to be analyzed in detail. Difference between profitability and liquidity compare. The impact of liquidity on profitability of some selected companies. Ratio analysis 4 p a g e profitability sustainability ratios continued return on assets net profit average total assets measures your ability to turn assets into profit. The primary aim of this paper is to investigate the relationship between liquidity and profitability. The study concluded that proper liquidity management can increase the profitability. Liquidity is a measure of a cash position in the company and how the liquid is the company is to meet its shortterm obligations.
The impact of liquidity on profitability diva portal. This article provides a short note on liquidity and profitability. In descriptive data analysis, mean, standard deviation. Effects of liquidity management on profitability of quoted.
Calculate stock turnover ratio from the following information. The oxford dictionary of finance and banking interprets the word profitability as the capacity or potential of a project or an organization to make a profit. Liquidity is the degree to how well the company can convert its sales into cash. Impact of liquidity on profitability of commercial banks in nepal. Pdf liquidity and profitability analysis of selected automobile. The major indicators of the financial performance of corporate entities are liquidity and profitability. Corporate finance, financial analysis, profitability, liquidity, airline companies, financial crises. Empirical analysis in private sector banks of india.
A study on liquidity and profitability in selected indian software. The relationship between liquidity and profitability. Ratio analysis ratio analysis ratio analysis refers to the analysis of various pieces of financial information in the financial statements of a business. In the context of an asset, it implies convertibility of the. Profitability vs liquidity top 6 differences to learn with.
Introduction chemical industries are backbone of industrial growth. That is, accounting liquidity is the ease with which a. Pdf an analysis of liquidity, profitability and riska study of. The effect of profitability and liquidity on audit opinions. Using the regression analysis, this study analyzes the profitability of commercial banks using balanced data over the period of 20062011. Presenting this set of slides with name liquidity and profitability ratio analysis dashboard ppt powerpoint presentation portfolio infographic template pdf.
Liquidity, solvency and profitability analysis using cash flow ratios and traditional ratios. Abstract the purpose of this research paper is to know the relationship between two ratios of the financial statements i. The study concluded that proper liquidity management can increase the profitability of the banks if other factors move positively. A low ratio compared to industry may mean that your competitors have found a way to operate more efficiently. Analysis and findings liquidity means the ability of a firm to meet its current or shortterm obligation when it becomes due. The relation between the liquidity management and profitability is examined using pearson correlation analyses. The results of all these measurements are quite apparent. The study through empirical approach, may use ratios and indicators to measure the performance and identify the financial health status of the companies. The importance of financial statement analysis to business decision. Pdf liquidity management and profitability of a firm is of a major importance in the current scenario majorly for financial management.
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