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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    • "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various ionic relationships confirmed the reverse ion exchange process where the Ca and Mg in the aquifer matrix have been replaced by Na at favorable exchange sites.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.
    Full-text · Article · Oct 2015 · Environmental Monitoring and Assessment
    • "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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    ABSTRACT: Working capital is an important area of finance that has not been studied as widely as it deserves. This study aims to contribute to the literature on working capital by analyzing its relationship with profitability. This study uses a sample of 160 manufacturing firms in Malaysia, and uses the ordinary least squares (OLS) regression technique, to achieve this aim. The results of this study present negative relationships between working capital (and its components) with profitability. Except for the negative relationship of payables with profitability, the other relationships follow general expectations based on popular finance theory. The results of this study (in comparison with other studies) show that the relationship of working capital (and its components) with profitability may not be as easy as it seems and may be dependent on other influences such as economic policies.
    No preview · Article · Jul 2015 · Global Business Review
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    • "This implicates that there can be improvement in the performance of firms if the time span of tying up working capital in the company is reduced (Garcia, 2011). This negative relationship is found in all markets, such as developed markets (Shin & Soenen, 1998; Deloof, 2003; Lazaridis and Tryfonidis, 2006; Garcia- Teruel & Martinez-Solano, 2007; Nobanee and Al-Hajjar, 2009; Gill et al., 2010; Garcia, 2011; Baños- Caballero, S., et al., 2013), emerging markets ( Shah & Sana, 2006; Anand & Malhotra, 2007; Raheman & Nasr, 2007; Samiloglu & Demirgunes, 2008; Zariyawati et al., 2009; Mohamad & Saad, 2010; Ching et al., 2011; Bagchi et al., 2012; Ray, 2012; Tufail et al., 2013; Golas et al., 2013), and developing markets (Eljelly, 2004; Padachi, 2006; Dong, 2010; Saghir et al., 2011; Napompech, 2012). However, the reliability on the negative relationships found in these markets is only based on the presence and the level of capital market imperfection (i.e., agency costs and informational asymmetries), internal finance availability, financing costs, or accessibility to capital markets (Baños- Caballero, S., et al., 2013; Fazzari et al., 1988; Myers & Majluf, 1984; Greenwald et al., 1984; Stiglitz & Weiss, 1981; Jensen & Meckling, 1976). "

    Full-text · Article · Jul 2015 · European Journal of Economics, Finance and Administrative Sciences
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