ROLE OF LIQUIDITY MANAGEMENT AS ANTECEDENT OF FIRMS PROFITABILITY: EVIDENCES FROM MANUFACTURING AND SERVICE CONCERN

Abstract

The management of liquidity is a crucial choice. An organization's financial success and development are governed by maintaining liquidity and implementing sound liquidity management. Decisions about liquidity management are solely dependent on factors such as industry kind, nature, size, age, goodwill, tangibility, etc. Reviewing the impact of liquidity management methods on organisations' profitability in India's manufacturing and service sectors—as well as highlighting the differences exist on the nature of industry—is the main goal of the current study. The top two automakers and top two service providers were chosen, and data was gathered from their published annual reports for the period from 2018-19 to 2022–23. The tools of ratio, correlation, regression, and ANOVA were used to examine the data.

The study's conclusion is that managers of any organisation, anywhere in the globe, can boost profitability by applying appropriate liquidity practises. The four indicators of liquidity management—CR, QR, Current Asset to Total Asset Ratio, and Current Liabilities to Total Asset Ratio—all have a significant impact on a company's profitability. Company’s decision-makers may find this study useful. Investors may be persuaded to place money in companies with strong market positions if it is made clear what needs to be done to improve the financial health of the company. In addition to deciding how to retain it, financial managers must also decide how much liquidity to hold.

Keywords: Liquidity, Profitability, Cash Conversion Cycle, Working Capital Management.