Abstract:
Managing liquidity in a firm must balance the risk and return. The efficient liquidity
management involves planning and controlling the current assets & current liabilities
in such a manner that eliminates the risk of liquidity. This study focuses to find out the
significant relationship between liquidity and profitability and to find out the impact of
liquidity on profitability in the listed companies in Sri Lanka. 45 listed companies were
taken as a sample in Sri Lanka. Data were collected from the annual report of all 45
listed companies during the study period from 2013 to 2017. Initially Descriptive
analysis was carried out in order to identify the missing data and normality of the data
then correlation and multiple regression analysis were carried out by using the SPSS
version 20. Findings showed that Current ratio, quick ratio and Liquidity ratio has a
significant relationship with Return on assets (ROA) at 1% significant level. And
liquidity of the firm has a significant relationship with profitability of the firm since
p=0.000 r=0.512. Moreover, liquidity has a significant impact on profitability of the
firm (p value is 0.0000 and R2 is 0.262). Further, findings showed that most of the Sri
Lankan listed manufacturing companies and food & beverage firms are maintaining
liquidity in a sufficient level.
