Abstract:
The ultimate goal of the companies is to enhance the wealth of the
shareholders. For that purpose, the liquidity and profitability plays the vital
and crucial role. That brings the problem that provided the basis for his
research “how liquidity effects on profitability of listed manufacturing
companies in Sri Lanka?” Especially the liquidity and its management affects
to a great extent to the growth and profitability of a firm. The liquidity
management becomes most important one as the inadequate liquidity may
injurious to the smooth operations of the firm as well as the excess liquidity
can be disturbed to achieve the greater profits. In this way, the present study
is aimed to investigate the relationship between liquidity and profitability. The
analysis is based on quarterly data of 20 manufacturing companies listed in
the Colombo Stock Exchange over a period of past six years from 2010 to
2015. Return on equity and Return on assets were used as the dependent
variables while Quick ratio, Current ratio and Liquid ratio were used as
independent variable. Correlation and regression analysis as well as the
descriptive statistics were applied in the analysis and findings suggest that
there is a significant relationship exists between liquidity and profitability
listed manufacturing companies in Sri Lanka. According to this study there
has an influence in liquidity on the profitability of manufacturing companies.
