Abstract
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.
Highlights
All over the world, financial managers make finance and investment decisions by considering an objective of wealth maximization
We focus namely on current ratio (CR), quick ratio (QR) and working capital turnover (WCT) as the proxies for liquidity characteristics of the company, and return on assets (ROA) as the proxy for profitability. 5.1 Liquidity and profitability ratios time-series analysis As mentioned in quantitative characteristics, companies generally aim to achieve current ratio around 2.0 or higher
The only statistically significant correlation between liquidity ratios and ROA is in case of ROA and WCT, where we find statistically significant but relatively weak correlation within both consolidated and unconsolidated data
Summary
Financial managers make finance and investment decisions by considering an objective of wealth maximization. Several other studies have been conducted to investigate determinants of relationship between working capital (or other liquidity ratios) and profitability ratios. – Poutník, L.: Relationship between Liquidity and Profitability: Empirical Study from the Czech Republic. Working capital, liquidity ratios and profitability ratios in the Czech Republic. The objective of this paper is to find, whether there exist correlation (a) within selected liquidity ratios and (b) selected liquidity ratios and selected profitability ratio in the Czech Republic. To achieve this goal, we exploit the access to Bureau van Dijk, Amadeus database and investigated Czech companies during period 20032013
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