RELATIONSHIP BETWEEN CORPORATE LIQUIDITY AND PROFITABILITY

Abstract

In this study the relationship between liquidity and profitability was investigated. Using time series data, the study covered a period of five years between 2004 and 2008 on brewery companies listed on the Ghana stock exchange. It was observed that from the multiple regressions analysis that total cash ratio (TCR) of 8% was maintained in the brewery industry over the period. Total liquidity ratio was also 29.7%. Liquidity refers to a firm's ability to meet its short-term obligations when they fall due. The performance in terms of profitability was evidenced by ROE, 22% and ROA, 9%. This was not impressive; however, it goes to highlights the importance liquidity management can affect profitability. This trend was observed consistently over the period 2004 to 2008. The study made some interesting revelations resulting from the Pearson’s correlation analysis. We found that, ROE and ROA are positively correlated with total cash ratio and total liquidity ratio.