Liquidity And Profitability Case Study

Decent Essays
LIQUIDITY AND PROFITBILITY

Liquidity and profitability are two important demanders in determining the soundness of an enterprise. Liquidity means ability of a firm to meet its current obligations when they become due for payment. It has two aspects – quantitative and qualitative. Quantitative aspect implies the quantum of current assets a firm possesses irrespective of making any difference between various types of current assets such as inventories, cash and so on. Qualitative aspect implies the quality in terms of their realization into cash considering time dimension involved in maturing different components of current assets. Profitability is the capacity of earning profits and it is most important measure of performance of a firms. It is generally assumed that there is negative relationship between liquidity and profitability i.e. higher liquidity results in lower profitability and vice-versa.

Objectives of the Study

 To study the growth and development of the company.
 To study the behavior of liquidity and profitability of the companies.
 To analyze the factors determining the liquidity and
…show more content…
Nevertheless, they provide some extreme useful information to the extent that the balance sheet shows the financial position on a particular date in terms of the structure of assets, liabilities and owner’s equity and so on, and the profit and loss account expose the results of operations for a certain period of time in terms of the revenue obtained and the cost incurred during the financial year. Thus the balance sheet and profit and loss account statement provides a summarized a view of the financial position and financial performance or operations of the firm. The analysis of financial statement is thus an important aid to financial

Related Documents

  • Decent Essays

    Net Present Value is the difference of present value of cash inflows and outflows; it’s used to analyze the success of an anticipated investment. The Discounted Cash Flow is used to estimate the appeal of an investment opportunity, it analysis free cash flow projections of the future. If the value attained through DCF analysis is higher than the current cost of the investment, that’s an indication of a good opportunity investment. The Weighted Average Cost of Capital is the company’s cost of capital which all of the company’s assets are respectively weighted; bonds, common and preferred stocks, and long-term debts are involved in the Weighted Average Cost of Capital calculation. The Equivalent Annual Annuity is a calculation of the annual cash flow of an annuity investment over its existence.…

    • 854 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    This has empowered FICO score offices to assume a focal part in money related markets – a part that a few business analysts see as extreme. 4. (a) Define Fundamental Analysis and Technical Analysis; and (b) Discuss how they differ and how an investor works with both. A fundamental analysis: It tries to gauge stock costs on the premise of monetary, industry and friends measurements. Nonetheless, the most imperative factors considered in choosing stock costs are profit and profits.…

    • 1229 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    As per the above discussion question, the aim of this paper is to review about the traditional theory of the firm is laid off due to the principal-agent problem. ‘Theory of the Firm ' is a microeconomic concept that states that firms (organisations) subsist and make decisions in order to maximize profits. Trade work together with the market to establish pricing and demand and then distribute resources according to representation that give the impression of being to maximize net profits. The principal goal of an organization is value maximization. The value of a firm is determined by the long-term confrontation of managerial decisions on profits.…

    • 702 Words
    • 3 Pages
    Decent Essays
  • Decent Essays

    The risk adjusted cost of capital gives the risk of the project as the greater the risk is equal to the higher cost of capital. The CAPM is used by firms estimating the cost of capital and the NPV method assumes that cash flows will be reinvested for the firm’s cost of capital. Reinvesting the cost of capital is a closer approximate to the actual figures. A projects required rate of return can be equal to the firms cost of capital but the risk is adjusted if the risk of the project is higher or lower than the firms risk through the use of…

    • 1468 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    Financial Accounting may be defined as the science and art of recording and classifying business transactions and preparing summaries of the same transactions and preparing summaries of the same for determining profit or loss and the financial position of the concern. The object of is to find out the profitability and to provide information about the financial position of the concern. Its purpose is to provide information for others to the value of a company. It is concerned with record – keeping directed towards the preparation of Profit and Loss Account and Balance Sheet. Managerial Accounting is concerned with the supply of information which is useful to management in decision making for the efficient running of the business and in minimizing…

    • 1121 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    It measures profitability after factoring in the amount of capital used in a business or a project at a period of time. As a true measurement of value creation, the ratio shows how much profit each pound of employed capital generates. This metric also measures value created for a firms’ shareholders as it illustrates the effectiveness of long-term financing strategy and how efficient the business can use its capital (Damodaran, 2007). A notable aspect of accounting based measures is that they are able to compare firms within an industry and evaluate how profitable the entity is relative to its size. However, Damodaran argues that this metric tends to favour mature companies as their assets have depreciated over a long period, thus manipulating the level of capital employed.…

    • 1497 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    The capital expenditure must represent the kinds of services and goods the company intends to offer later on. Capital jobs help determine the price of the cost as well as the finished product the producer must bill in two ways. The cash spent on capital projects generally creates a fiscal burden in the type of debt repayment. Second, the sort of investment mainly orders the expense of production (Tucker, 2008). There could be some important complexities that might appear when an organization is contemplating growth via capital jobs.…

    • 1482 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

     It shows the percentage of total assets that are financed by the creditors. Interest cover ratio = Earnings before interest and taxes/ Interest expense  Measures the ability of the company to repay its interests on debts.  A high ratio indicates its better ability on repayment. Ratios related to distribution decision process Table 4 below introduces three types of ratios related to distribution and their implications. Dividend Yield Ratio would show a general picture to the shareholders about how extent to be worthwhile to invest this company comparing with the market price.…

    • 816 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Fedex Case Study

    • 1223 Words
    • 5 Pages

    Similar to our personal finances, planning and organizing resources through budgeting is cornerstone of any business development. Budgeting is a financial standard of performance, which allocates funds in across the operational span of an organization. This is designed and formulated based on the needs of growth and control. Financial figures are evaluated against the budgeting standards and then reviewed for future planning. Working on performance standards and evaluation, balance scorecard module provides the most useful tool for comparing and taking managerial actions.…

    • 1223 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Both of their results indicated negative relationship between firm leverage and the dependent variable. This means that the leverage is inversely with the profitability of firms. The reason given by Lazaridis and Tryfonidis on the result is firms would get a cheaper price if firms trade with suppliers by cash. The cash trade would decrease the leverage then increase the gross operating profit since firms purchase their inventories with lower…

    • 1494 Words
    • 6 Pages
    Decent Essays