Abstract
The purpose of this paper is to figure out the link between liquidity and profitability, as well as the impact of liquidity on profitability. Ten listed companies with a bigger market share in the oil and gas sector of the Nigerian economy were subjected to a fixed panel regression study. Secondary data was gathered for ten years, from 2011 to 2020, from their published annual reports. Profit after tax (PAT), Return on Asset (ROA), and Return on Equity (ROE) were used to determine profitability (ROE). Internal liquidity variables such as equity, debt, and sales were utilized to determine the behavior of the dependent variable, but external elements such as lending interest rate and exchange rate were employed to further explain profitability behavior. The data were analyzed using a multiple regression approach. The findings reveal that debt has a significant negative impact on companies' profitability. Similarly, equity capital, as well as retained earnings, are more beneficial to firms than the debt financing of the oil and gas sector. The study, therefore, recommends that oil and gas firms should boost their equity capital, improve their revenues, increase their retain earnings, and reduce debt financing to enable them to generate more wealth for shareholders.
Highlights
In an economy where financial institutions are reluctant to extend credit facilities due to an increase in non-performing loans and high-interest rates on loans, the concept of liquidity and its management is extremely important, especially in this period of global financial disruption, to be thoroughly examined and taken seriously.https://www.cribfb.com/journal/index.php/ijafrInternational Journal of Accounting & FinanceVol 8, No 1; 2021Liquidity management is a critical component of any organizational environment that necessitates careful consideration, planning, and management because it influences the level of trust among stakeholders
Ten listed companies with a bigger market share in the oil and gas sector of the Nigerian economy were subjected to a fixed panel regression study
This research looks at external drivers of company performance, proposing that some macroeconomic variables, which can be regarded as external shocks, affect company performance, such as the lending interest rate
Summary
In an economy where financial institutions are reluctant to extend credit facilities (loans) due to an increase in non-performing loans and high-interest rates on loans, the concept of liquidity and its management is extremely important, especially in this period of global financial disruption, to be thoroughly examined and taken seriously.https://www.cribfb.com/journal/index.php/ijafrInternational Journal of Accounting & FinanceVol 8, No 1; 2021Liquidity management is a critical component of any organizational environment that necessitates careful consideration, planning, and management because it influences the level of trust among stakeholders. Liquidity should be controlled such that neither too much nor too little is available as firms with poor liquidity management experience illiquidity and eventually bankruptcy (Majakusi, 2016; Abdi & Kavale, 2016; Edem, 2017). Firms' capital structures, are made up of debt and equity, which refers to borrowed funds and owned assets, respectively (Umobong, 2015). A company's debt portfolio is mostly made up of short- and long-term obligations that can only be paid if liquidity is available. Liquidity has been defined in this context as the ease with which assets can be converted into cash and cash equivalents with minimal loss in value. The opportunity cost of remaining liquid is the loss of earnings from not investing in higher-yielding assets
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