Impact of Liquidity Management on Profitability Performance of Steel Authority of India Limited

Abstract

Profitability is an indication of the efficiency with which the operations of the business are carried on. Profitability performance analysis is an important criterion to evaluate the overall efficiency of an organisation. It is concerned with the total earnings or the income generated and the total expenditure or the investments incurred by a company. Thus, profitability performance analysis may be defined as the ability of a given investment, to earn a return on it and liquidity is the one of the important factor which affects the profitability of the company. The emphasis of the paper is to measure and analyse the impact of liquidity on the profitability performance of Steel authority of India Limited (SAIL) for the accounting period from 2000-01 to 2009-10. Secondary data collected from the published Annual Reports of SAIL are used in the study. Return on Capital Employed has been taken as dependent variable and three liquidity ratios, namely, current ratio, liquid ratio and cash ratio has been treated as independent variable. Correlation Coefficient is applied to examine the impact of liquidity on profitability performance and student t-test has been used to test the hypotheses. The findings of the study reveals that out of the three liquidity ratios undertaken for the study, current ratio has mostly affect the profitability of the company. Thus, the management of the company should focus on the maintenance of current ratio.

Keywords: Liquidity, Profitability, Working Capital Management, Correlation Coefficient, Student t-test.