The effects of liquidity management on firm profitability: Evidence from Sri Lankan listed companies

This paper has focused on analyzing the nature of the liquidity and its impact of profitability from listed companies in Sri Lanka. In this study an attempt has been made to analyze the liquidity and its impact on profit earning capacity during 2008 to 2012. To evaluate the profitability it has been used the ratio of ROE and ROA. Based on the nature of data collection through different tools, the following statistical techniques were employed: Descriptive analysis, correlation and regression. The research findings show that there is no significant relationship between liquidity and profitability. These results are consistent with prior empirical studies. Profitability is a major factor in the going concern of a business. Managers should strive to achieve a reasonable level of profitability in order to maximize their shareholders wealth. 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 as to ensure positive impact on its profitability. The purpose of the study was to find out the relationship between the liquidity and the profitability of Companies listed on the Colombo Stock Exchange.