Liquidity and profitability are both vital aspects of a company's survival. Earlier studies suggest that there is a trade-off between liquidity and profitability. Too much liquidity can lower the profitability but the company still needs to maintain sufficient liquidity in order to be able to meet their short-term obligations. The aim of this study is to contribute to the understanding of the liquidity effect on profitability and the relationship between liquidity and profitability in swedish small companies. The relationship will be investigated with regards to industry and level of liquidity. The study is an empirical cross-sectional study where the main analysis method is multiple regression analysis.The results showed that there is a significant relationship between liquidity and profitability that appears to be non-linear. In the overall sample, there was a significant negative relationship between liquidity and profitability, measured as ROE and a positive relationship when profitability was measured as ROA. The results also reveal that with low liquidity levels (quick ratio below 2) the relationship between liquidity and profitability is positive, but the positive effect decreases and eventually disappears as the liquidity levels increase. The relationship is also more prominent in some industries, but not possible to distinguish in others. The model indicated that even though there was a significant relationship between liquidity and profitability, it only explained a small portion of the total variation in profitability.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:lnu-105439 |
| Date | January 2021 |
| Creators | Gummesson, Malin, Slaveska, Martina |
| Publisher | Linnéuniversitetet, Institutionen för ekonomistyrning och logistik (ELO) |
| Source Sets | DiVA Archive at Upsalla University |
| Language | Swedish |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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