Impact of liquidity ratios on profitability PDF
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IMPACT OF LIQUIDITY RATIOS ON
PROFITABILITY:
With Special Reference to Listed Manufacturing
Companies in Sri Lanka.
By
T.S.L.Rupasinghe
MF/2009/2404
Department of Accounting and Finance
August 2013
Dissertation Presented to the Faculty of Management and Finance
of University of Ruhuna
in Partial Fulfillment of the Requirements for the Degree of
Bachelor of Business Administration
PROFITABILITY:
With Special Reference to Listed Manufacturing
Companies in Sri Lanka.
By
T.S.L.Rupasinghe
MF/2009/2404
Department of Accounting and Finance
August 2013
Dissertation Presented to the Faculty of Management and Finance
of University of Ruhuna
in Partial Fulfillment of the Requirements for the Degree of
Bachelor of Business Administration
i
Acknowledgement.
Very special thanks go to our supervisor lecturer, Mr.K.P.G.V.Gunarathna whose patience
and understanding made this project a nice conclusion for my studies at the Ruhuna
University.
I would also like to thank to all of the lecturers in Department of Accounting & Finance and
love ones for their continuing support during this project with conducting workshops and
seminars relating to the research studies.
Acknowledgement.
Very special thanks go to our supervisor lecturer, Mr.K.P.G.V.Gunarathna whose patience
and understanding made this project a nice conclusion for my studies at the Ruhuna
University.
I would also like to thank to all of the lecturers in Department of Accounting & Finance and
love ones for their continuing support during this project with conducting workshops and
seminars relating to the research studies.
ii
Table of Contents
Acknowledgement. .................................................................................................................................. i
Table of Contents.................................................................................................................................... ii
List of Tables .......................................................................................................................................... iv
List of Figures .......................................................................................................................................... v
List of Acronyms..................................................................................................................................... vi
Declaration............................................................................................................................................ vii
Certification.......................................................................................................................................... viii
Abstract.................................................................................................................................................. ix
CHAPTER ONE ................................................................................................................................. 1
INTRODUCTION....................................................................................................................................... 1
1.1 Background of the Study......................................................................................................... 1
1.2 Research Problem ................................................................................................................... 3
1.3 Research question & Objectives ................................................................................................. 3
1.4 Methodology........................................................................................................................... 3
1.3 Significance of the Study......................................................................................................... 4
1.4 Limitations............................................................................................................................... 4
1.7 Summary and chapter organization........................................................................................ 5
CHAPTER TWO ................................................................................................................................ 7
LITERATURE REVIEW ....................................................................................................................... 7
2.1 Liquidity................................................................................................................................... 7
2.1.1 Liquidity Ratios..............................................................................................................10
2.2 Profitability............................................................................................................................12
2.2.1 Profitability Ratios.........................................................................................................13
2.3 Liquidity VS Profitability........................................................................................................14
2.4 Summary and Chapter Organization.....................................................................................16
CHAPTER THREE ............................................................................................................................17
METHODOLOGY ..........................................................................................................................17
3.1 Introduction ..........................................................................................................................17
3.2 Data Collection......................................................................................................................17
3.3 Sampling Method..................................................................................................................17
3.4 Measurement of Variables....................................................................................................18
3.4.1 Current Ratio.................................................................................................................18
Table of Contents
Acknowledgement. .................................................................................................................................. i
Table of Contents.................................................................................................................................... ii
List of Tables .......................................................................................................................................... iv
List of Figures .......................................................................................................................................... v
List of Acronyms..................................................................................................................................... vi
Declaration............................................................................................................................................ vii
Certification.......................................................................................................................................... viii
Abstract.................................................................................................................................................. ix
CHAPTER ONE ................................................................................................................................. 1
INTRODUCTION....................................................................................................................................... 1
1.1 Background of the Study......................................................................................................... 1
1.2 Research Problem ................................................................................................................... 3
1.3 Research question & Objectives ................................................................................................. 3
1.4 Methodology........................................................................................................................... 3
1.3 Significance of the Study......................................................................................................... 4
1.4 Limitations............................................................................................................................... 4
1.7 Summary and chapter organization........................................................................................ 5
CHAPTER TWO ................................................................................................................................ 7
LITERATURE REVIEW ....................................................................................................................... 7
2.1 Liquidity................................................................................................................................... 7
2.1.1 Liquidity Ratios..............................................................................................................10
2.2 Profitability............................................................................................................................12
2.2.1 Profitability Ratios.........................................................................................................13
2.3 Liquidity VS Profitability........................................................................................................14
2.4 Summary and Chapter Organization.....................................................................................16
CHAPTER THREE ............................................................................................................................17
METHODOLOGY ..........................................................................................................................17
3.1 Introduction ..........................................................................................................................17
3.2 Data Collection......................................................................................................................17
3.3 Sampling Method..................................................................................................................17
3.4 Measurement of Variables....................................................................................................18
3.4.1 Current Ratio.................................................................................................................18
iii
3.4.2 Quick ratio.....................................................................................................................18
3.4.3 Return on Assets ...........................................................................................................19
3.4.4 Return on Equity ...........................................................................................................19
3.4.5 Return on Sales .............................................................................................................19
3.5 Data Analysis.........................................................................................................................20
CHAPTE FOUR................................................................................................................................22
ANALYSIS AND DISCUSSION ..............................................................................................................22
4.1 Introduction ..........................................................................................................................22
4.2 Descriptive Statistics .............................................................................................................22
4.3 Correlation Analysis ..............................................................................................................23
4.4 Regression Analysis...............................................................................................................24
4.5 Hypothesis Testing................................................................................................................25
CHAPTER FIVE................................................................................................................................26
CONCLUSION.........................................................................................................................................26
REFERENCES ..................................................................................................................................28
3.4.2 Quick ratio.....................................................................................................................18
3.4.3 Return on Assets ...........................................................................................................19
3.4.4 Return on Equity ...........................................................................................................19
3.4.5 Return on Sales .............................................................................................................19
3.5 Data Analysis.........................................................................................................................20
CHAPTE FOUR................................................................................................................................22
ANALYSIS AND DISCUSSION ..............................................................................................................22
4.1 Introduction ..........................................................................................................................22
4.2 Descriptive Statistics .............................................................................................................22
4.3 Correlation Analysis ..............................................................................................................23
4.4 Regression Analysis...............................................................................................................24
4.5 Hypothesis Testing................................................................................................................25
CHAPTER FIVE................................................................................................................................26
CONCLUSION.........................................................................................................................................26
REFERENCES ..................................................................................................................................28
iv
List of Tables
4.1: Descriptive Statistics of the Variables
4.2: Pearson’s Correlation Coefficient
4.3: Regression Analyses
4.4 : Testing of Hypothesis
List of Tables
4.1: Descriptive Statistics of the Variables
4.2: Pearson’s Correlation Coefficient
4.3: Regression Analyses
4.4 : Testing of Hypothesis
v
List of Figures
1.1 Conceptual Framework
2.1 Inverse relationships between liquidity and profitability
3:1 Liquidity and profitability measures
List of Figures
1.1 Conceptual Framework
2.1 Inverse relationships between liquidity and profitability
3:1 Liquidity and profitability measures
vi
List of Acronyms
ROE : Return on Equity
ROA : Return on Assets
ROS : Return on Sales
CR : Current Ratio
QR : Quick Ratio
CSE : Colombo Stock Exchange
List of Acronyms
ROE : Return on Equity
ROA : Return on Assets
ROS : Return on Sales
CR : Current Ratio
QR : Quick Ratio
CSE : Colombo Stock Exchange
vii
Declaration
I hereby declare that this dissertation is my own work and effort and that, to the best of my
knowledge and belief, it contains no material previously published or written by another
person nor material which has been accepted for the award of any other degree or diploma of
the university or other institute of higher learning, except where due acknowledgment has
been made in the text.
Signature of the student: ________________________________
Name of the student: T.S.L.Rupasinghe
Registration number of the student: MF/2009/2404
Date: 10/02/2014
Declaration
I hereby declare that this dissertation is my own work and effort and that, to the best of my
knowledge and belief, it contains no material previously published or written by another
person nor material which has been accepted for the award of any other degree or diploma of
the university or other institute of higher learning, except where due acknowledgment has
been made in the text.
Signature of the student: ________________________________
Name of the student: T.S.L.Rupasinghe
Registration number of the student: MF/2009/2404
Date: 10/02/2014
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