European Financial and Accounting Journal
European Financial and Accounting Journal
European Financial and Accounting Journal
Faculty of Finance and Accounting, University of Economics, Prague

European Financial and Accounting Journal 2016/3

Relationship between Liquidity and Profitability: Empirical Study from the Czech Republic

DOI: https://doi.org/10.18267/j.efaj.159

[full text (PDF)]

Jan Svitlík, Lukáš Poutník

The paper deals with relationship between liquidity and profitability ratios in the Czech Republic to investigate whether there exists correlation (a) within selected liquidity ratios and (b) selected liquidity ratios and selected profitability ratio in the Czech Republic during the period 2003-2013. Empirical data from Bureau van Dijk, Amadeus database were analysed from the point of both time-series and cross-sectional analysis. The main findings of the paper are that correlation within selected liquidity ratios is fairly strong while correlation between selected liquidity ratios and selected profitability ratio is relatively weak.

Keywords: Czech Republic, Empirical study, Liquidity, Profitability

JEL Classification: G30, M41

References:

Ali, U., 2009. The Relationship of Cash Conversion Cycle with Firm Size and Profitability: An Empirical Investigation in Turkey. International Research Journal of Finance and Economics 24, 6-16.

Annemans, N., 2008. An Introduction to the Concepts, Methods and Pitfalls of Health Economic Evaluations. Health Economics for Non-Economists, Gent, Academia Press.

Bourke, P., 1989. Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking & Finance 1, 65-79. DOI: 10.1016/0378-4266(89)90020-4.

Deloof, M., 2003. Does Working Capital Management Affect Profitability of Belgian Firms? Journal of Business, Finance and Accounting 3&4, 573-587. DOI: 10.1111/1468-5957.00008.

Drobetz, W., Grüninger, M., 2006. Corporate Cash Holdings: Evidence from Switzerland. WWF Forschungsbericht 7, 1-35. DOI: 10.1007/s11408-007-0052-8.

Ferreira, M. A., Vilela, A. S., 2004. Why Do Firms Hold Cash? Evidence from EMU Countries. European Financial Management 2, 295-319. DOI: 10.1111/j.1354-7798.2004.00251.x.

Gill, A., Biger, N., Mathur, N., 2010. The Relationship Between Working Capital Management and Profitability: Evidence from the United States. Business and Economics Journal 1.

Karaduman, H. A., Akbas, H. E., Ozsozgun, A., Salih, D., 2010. Effects of Working Capital Management on Profitability: The Case for Selected Companies in the Istanbul Stock Exchange (2005-2008). International Journal of Economics and Finance Studies 2, 47- 54.

Mehmet, S., 2009. Relationship Between Efficiency Level of Working Capital Management and Return on Total Assets in ISE. International Journal of Business and Management 10, 109-114. DOI: 10.5539/ijbm.v4n10p109.

Michalski, G. M., 2011. Financial Analysis in the Firm: A Value- Based Liquidity Framework. Available from: <http://ssrn.com/abstract=1839367>. [13 February 2016].

Molyneux, P., Thornton, J., 1992. Determinants of European Bank Profitability. Journal of Banking and Finance 6, 1173-1178. DOI: 10.1016/0378-4266(92)90065-8.

Nathan, S., Sivakumar, K., Vijayakumar, J., 2001. Returns to Trading Strategies Based on Price-to-Earnings and Price-to-Sales Ratios. The Journal of Investing 2, 17-28. DOI: 10.3905/joi.2001.319458.

Ozkan, A., Ozkan, N., 2004. Corporate Cash Holdings: An Empirical Investigation of UK Companies. Journal of Banking and Finance 9, 2103-2134. DOI: 10.1016/j.jbankfin.2003.08.003.

Pedro, J. G., Pedro, M. S., 2007. Effect of Working Capital Management on SME Profitability. International Journal of Managerial Finance 2, 164-177. DOI: 10.1108/17439130710738718.

Saravanan, P., 2001. A study on working capital management in non banking finance companies. Finance India 3, 30-45.

Schroeder, R., Clarc, M., Cathey, J. M., 2011. Financial Accounting Theory and Analysis. New Jersey, John Wiley & Sons.