An Effect of Liquidity on Profitability in Cement Sector Firms

Abstract

Purpose:

Purpose of the study is to examine how liquidity in Pakistan's cement market affects profitability for this purpose current ratio, cash conversion ratio, cash ratio and working capital to Total Assets are used.

Methodology:

This goal was accomplished through the collection of secondary data of selected company balance sheets and income statements from 2010 to 2019. Secondary data was gathered from a sample of 4 companies listed at Pakistan Stock exchange ,The correlation was performed to inspect the association or link between profitability and liquidity, and regression analysis using the OLS technique was used to estimate the parameters. Profitability (ROE) is considered as dependent and liquidity elements are independent variables (CCE, CR, WCTA & cash ratio) for the study.

Results / Findings: 

Study finds CCE and CR having a positive and significant relation, whereas cash ratio having significant and WCTA have an insignificantly negative relationship with the dependent variable. This study finds that the profitability ratios are influenced by the liquidity ratio.

Novelty / Originality of the study: 

This study contributes to the literature on the impact of Liquidity on Profitability by considering the Return on equity as Profitability measure (dependent variable) whereas current ratio, cash conversion ratio, cash and working capital to Total Assets are used for the liquidity measure (independent variable).