Therelationship between liquidity and the financial performance of non-financial firms listed on the ghana stock exchange (GSE)

The purpose of this study was to examine the relationship between liquidity and the financial performance of non-financial firms listed on the Ghana Stock Exchange (GSE). Panel data extracted from the audited annual reports of 15 listed non-financial firms for the period 2008 to 2017 was used for the study. In the study, financial performance of the firms was measured through Return on Assets (ROA), Return on Equity (ROE) and Return on Capital Employed (ROCE), whilst the Current Ratio (CR), Quick Ratio (QR) and the Cash Flow Ratio (CFR) were used to proxy liquidity. The study adopted the descriptive and inferential techniques of data analyses. All the study variables were analyzed through the descriptive statistics of mean, standard deviation, variance, minimum and maximum values, range, skewness and kurtosis. Since the study was a correlational study, the Pearson Product-Moment Correlation Coefficient technique of data analysis was employed to measure the strength and direction of the linear relationship that existed between liquidity and the firms’ financial performance. All the data analysis were conducted through STATA version 15 software package with a 5% level of significance (p≤0.05). From the study's findings, liquidity surrogated by the Current Ratio (CR), Quick Ratio (QR) and the Cash Flow Ratio (CFR) had a significant relationship with the firms’ financial performance as measured by ROA, but liquidity proxied by the Current Ratio (CR), Quick Ratio (QR) and the Cash Flow Ratio (CFR) had no significant association with the firms’ financial performance as measured by ROE and ROCE. Based on the findings, the study recommended among others that non-financial firms listed on the Ghana Stock Exchange (GSE) can improve their profitability positions by efficiently managing their liquid assets. Thus, there should be a trade-off between the firms’ liquidity and their profitability. In other words, if the firms’ liquid assets are handled expertly, their final bottom lines are expected to improve significantly. It was discovered from the study that, liquidity proxied by the current ratio, quick ratio and the cash flow ratio had no significant association with the firms’ financial performance as measured by ROE and ROCE. This is an indication that, an increase in liquidity did not significantly lead to an increase in the firms’ financial performance as per ROE and ROCE. The study therefore recommended that, factors such as seasonal changes in demand, firm size, manufacturing cycle and technological changes might have a greater influence on the firms’ financial performance, and should be seriously considered in the firms’ business decisions.