Drishtikon: A Management Journal

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Evaluation of Profitability and Liquidity Relationship through Multivariate Working Capital Analysis


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1 Accredited Management Teacher Author of Oxford University Press, and Wiley, India
     

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This paper is empirical investigation of the evaluation of relationship between profitability and liquidity trade off through the application of working capital analysis. The trade off have been studied of the firms operating in pharmaceutical sectors in India, and they are privately owned public limited companies. The secondary data from the published annual reports of the five years are taken into consideration to form the financial analysis and development of profitability line and liquidity line. I investigated two major privately owned public limited pharmaceutical manufacturers, with five years' actual and published historical data. This paper also focuses on the conflicting dimensions of involvement of individual ratios in framing the conclusion with respect to profitability and liquidity measurement in traditional and old age way. Researcher has framed the multi variate relationship between set of financial ratios instead of traditional performance measurement of individual ratio. That is among other characteristics, researcher has used a state space of time, with time series data, and based on that formed the multi linear equation to verify the validity of the data base. It argues that advising is congruent while monitoring is dissonant with respect to measurement and analysis of financial performance and soundness. This analysis provides possible existences of set of ratios relationships. The implication of the model coincides with observed features of financial ratio, and additionally tries to establish the statistical measurement and confidence level with respect to set of them. The paper has provided a strong relationship between the sets of ratios based on four distinct but interrelated issues.
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  • Shah, Paresh, (2009), Financial Management, 2nd edition, Biztantra, India,p.396

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  • Evaluation of Profitability and Liquidity Relationship through Multivariate Working Capital Analysis

Abstract Views: 294  |  PDF Views: 2

Authors

Paresh Shah
Accredited Management Teacher Author of Oxford University Press, and Wiley, India

Abstract


This paper is empirical investigation of the evaluation of relationship between profitability and liquidity trade off through the application of working capital analysis. The trade off have been studied of the firms operating in pharmaceutical sectors in India, and they are privately owned public limited companies. The secondary data from the published annual reports of the five years are taken into consideration to form the financial analysis and development of profitability line and liquidity line. I investigated two major privately owned public limited pharmaceutical manufacturers, with five years' actual and published historical data. This paper also focuses on the conflicting dimensions of involvement of individual ratios in framing the conclusion with respect to profitability and liquidity measurement in traditional and old age way. Researcher has framed the multi variate relationship between set of financial ratios instead of traditional performance measurement of individual ratio. That is among other characteristics, researcher has used a state space of time, with time series data, and based on that formed the multi linear equation to verify the validity of the data base. It argues that advising is congruent while monitoring is dissonant with respect to measurement and analysis of financial performance and soundness. This analysis provides possible existences of set of ratios relationships. The implication of the model coincides with observed features of financial ratio, and additionally tries to establish the statistical measurement and confidence level with respect to set of them. The paper has provided a strong relationship between the sets of ratios based on four distinct but interrelated issues.

References