Abstract
Liquidity refers to the paying ability of the business organization while profitability assesses the profit earning capacity of the business organization. The liquidity of the business organization can be bifurcated into two based on time i.e., short-term and long-term liquidity. The short-term liquidity reveals the operational efficiency while long-term liquidity refers to the financial capability to repay the long-term debts of the business organization. The short-term paying ability is the management of the working capital or efficient management of the current assets and current liabilities. The current assets and current liabilities are directly related to the revenue of the business and further affected by the profitability, indirectly. The long-term paying ability or financial health of the business organization is reflected by the debts and equity ratio. The energy sector of Saudi Arabia is a prominent sector and contributes to the economy progressively. The study is based on secondary data and reveals the long-term and short-term liquidity variations and the cohesiveness of long-term and short-term liquidity with the revenue and profitability of energy sector companies. The study reveals the significant variations in the short-term and long-term liquidity and cohesiveness between the revenue, profitability, and short-term and long-term liquidity of the energy sector companies.
Highlights
Liquidity refers to the paying ability while profitability indicates the profit earning capacity of the business organizations
It is assumed that the working capital management or short-term liquidity and capital structure or long-term paying ability governs the revenue and profitability of the energy sector companies of Saudi Arabia
The energy sector companies of Saudi Arabia maintain a low level of short-term liquidity
Summary
Liquidity refers to the paying ability while profitability indicates the profit earning capacity of the business organizations. The profit earning capacity can be based on the sales volume of funds invested in the business organization. It is assumed that the revenue or sales volume and profit earning capacity are governed by the funds invested in operational activities or working capital and funds invested in fixed assets, if other things remain constant. The level of investments in the fixed assets and working capital management i.e. management of current assets and current liabilities enhances the level of sales volume while the level of sales volume enhances the absolute amount of the profit but profitability of the business organizations affected by the gap of the sales price and total cost of the product.
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