The Tradeoff Between Liquidity and Profitability: Evidence From Indian Manufacturing Firms

The main aim of this research paper is to examine the trade-off between liquidity and profitability of Indian firms. The target population of the study is manufacturing firms. The study used convenience sampling for collecting the data. The study is based on secondary data for the period from 2008 to 2017 and 20 Indian manufacturing firms are selected for this purpose. Analysis of the data has been undertaken using SPSS software. Findings revealed that current liabilities ratio have a positive and significant impact on earnings per share and profit after tax. On the contrary, the current ratio and quick ratio have an insignificant impact on earnings per share, return on capital employed, return on assets and profit after tax. This study suggests that managers should incorporate liquidity into their evaluation decisions in order to boost the financial return of their businesses. The current study offers valuable insights into the success of Indian listed companies for administrators, analysts, regulators, investors, and other interested parties. There is insufficient research that has been conducted to examine the trade-off between liquidity and profitability. Furthermore, findings from this literature cannot be relied upon as they are outdated. Therefore, this study is going to provide updated evidence on the trade-off between liquidity and profitability of Indian manufacturing firms, an area that has largely remained unexplored