Liquidity Risk Management and Financial Performance: Are Consumer Goods Companies Involved?

Abstract

The study examines the effect of liquidity risk management on the financial performance of consumer goods companies. It was aimed at establishing the extent of concern of consumer goods companies in the management of their liquid cash, cash defensive intervals, long term debts, and quick ratios, for the purpose of turning around their financial performance. Data were obtained from the annual reports and accounts of studied companies and were converted to liquidity measurement parameters. Analyses were done using multiple regression analysis methods and findings show that long term debts, quick ratios, and cash defensive intervals have a significant effect on EPS and ROA, while cash ratio and long term debts affect ROCE only. Specifically, it was empirically established that there exists a significant relationship between liquidity risk management and the financial performance of consumer goods companies .Findings further reveal that companies’ non-concerned attitude to liquidity risk management affects the financial performance of consumer goods companies significantly. The study recommends that consumer goods companies should incorporate a clear liquidity risk management approach in their strategic policy framework and communicate the same to all functional units. Because of the strategic importance of consumer goods companies to the living standards of consumers, these companies should also establish and monitor risk warning dashboards to promptly arrest and manage risk variability and risk volatility in this very important sector of the economy.