Liquidity - profitability tradeoff: An empirical investigation in an emerging market

International Journal of Commerce and Management 05/2004; 14(2):48-61. DOI: 10.1108/10569210480000179


This study empirically examines the relation between profitability and liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia. Using correlation and regression analysis the study found significant negative relation between the firm’s profitability and its liquidity level, as measured by current ratio. This relationship is more evident in firms with high current ratios and longer cash conversion cycles. At the industry level, however, the study found that the cash conversion cycle or the cash gap is of more importance as a measure of liquidity than current ratio that affects profitability. The size variable is also found to have significant effect on profitability at the industry level. Finally, the results are stable over the period under study.

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Available from: Abuzar Eljelly, Mar 09, 2015
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    • "Agricultural Development Company (TADCO), Al Jawf Agricultural Development Company, Hail Agricultural Development Company (HADCO), and Qassim Agricultural Development Company (GACO) (Eljelly 2004 "
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    ABSTRACT: Assessment of groundwater quality is of utmost significance in arid regions like Saudi Arabia where the lack of present-day recharge and high evaporation rates coupled with increasing groundwater withdrawal may restrict its usage for domestic or agricultural purposes. In the present study, groundwater samples collected from agricultural farms in Hail (15 samples), Al Jawf (15 samples), and Tabuk (30 samples) regions were analyzed for their major ion concentration. The objective of the study was to determine the groundwater facies, the main hydrochemical process governing the groundwater chemistry, the saturation index with respect to the principal mineral phases, and the suitability of the groundwater for irrigational use. The groundwater samples fall within the Ca-Cl type, mixed Ca-Mg-Cl type, and Na-Cl type. Evaporation and reverse ion exchange appear to be the major processes controlling the groundwater chemistry though reverse ion exchange process is the more dominating factor. The various ionic relationships confirmed the reverse ion exchange process where the Ca and Mg in the aquifer matrix have been replaced by Na at favorable exchange sites. This phenomenon has accounted for the dominance of Ca and Mg ions over Na ion at all the sites. The process of reverse ion exchange was further substantiated by the use of modified Piper diagram (Chadha's classification) and the chloro-alkaline indices. Evaporation as a result of extreme aridity has resulted in the groundwater being oversaturated with aragonite/calcite and dolomite as revealed by the saturation indices. The groundwater samples were classified as safe (less than 10) in terms of sodium adsorption ratio (SAR) values, good (less than 1.25) in terms of residual sodium carbonate (RSC) values, and safe to moderate (between 0 and 3) in terms of Mg hazard for irrigation purposes. Though the high salinity groundwater in the three regions coupled with low SAR values are good for the soil structure, it can have a negative impact on the crop production by adversely affecting the crop physiology. Cultivation of high-salinity-resistant varieties of crops is recommended for maximum agricultural productivity.
    Environmental Monitoring and Assessment 10/2015; 187(10). DOI:10.1007/s10661-015-4828-4 · 1.68 Impact Factor
    • "Using a regression model, Wang (2002) finds negative relationships between the CCC and the profitability measures (return on assets—ROA and return on equity—ROE) and this relationship is sensitive to industry factors. Similarly, Deloof (2003), Khan, Hijazi and Kamal (2005) and Eljelly (2004) confirm this negative relationship. On the other hand, there are also studies such as by Padachi (2006), Gill, Biger and Mathur (2010) and Sharma and Kumar (2011), which find a positive relationship between CCC and profitability. "
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    Global Business Review 07/2015; 16(4):545-556. DOI:10.1177/0972150915581098
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    • "As mentioned in the first section of the paper, the Association of Corporate Treasurers indicated liquidity management as a fundamental function of corporate treasury, addressing the context of trade-off between liquidity and profitability (this problem is addressed among others in: Eljelly, 2004, pp. 48-61; García-Teruel, Martínez-Solano, 2007, pp. "
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