IMPACT OF LIQUIDITY RISK ON PERFORMANCE
IMPACT OF LIQUIDITY RISK ON PERFORMANCE
Abstract
Liquidity risk arises when there is discrepancy between the demand of borrowers and the inabilities to meet these demands.
Purpose
The purpose of this paper is to analyse the liquidity risk and the impact of liquidity risk on performance of the manufacturing sector.
Methodology
Least square regression model is used in this study. Data of manufacturing sector is used to achieve the objective of this research paper. ROA and EPS are used as measures of liquidity risk and performance.
Findings
This study shows that liquidity risk has a great impact on the performance of manufacturing companies. ROA has significant relation with LNTA, LATA and QR but insignificant with LNTSF. EPS has significant relation LNTSF, LATA and LNTA with but insignificant with QR.
Keywords
Liquidity risk, performance, manufacturing sector.
Paper Type
Research Paper
Introduction
Managing liquidity in an organization is very important and a difficult task.
Liquidity risk of an organization is measured through different liquidity ratios. Liquidity risk means the payment of current liabilities of a business. Liabilities of a business include operating and financial expenses that are made to obtain a long term loan to expand a business. It will increase the performance of a business. Return on assets is one of the ratios that will be used in this study to check the performance and is calculated with net profit and total assets. To calculate liquidity risk, quick ratio is also calculated with liquid assets and current liabilities. Other ratios used to calculate liquidity risk and its impact on performance are loan to total assets, loan to short term financing, earning per share and loan to assets.
There is a general principle about liquidity and profitability is that to gain one, give up other. In this era of high competition, most of the businessmen used aggressive strategy to increase profitability. While using this strategy,
Abstract
Liquidity risk arises when there is discrepancy between the demand of borrowers and the inabilities to meet these demands.
Purpose
The purpose of this paper is to analyse the liquidity risk and the impact of liquidity risk on performance of the manufacturing sector.
Methodology
Least square regression model is used in this study. Data of manufacturing sector is used to achieve the objective of this research paper. ROA and EPS are used as measures of liquidity risk and performance.
Findings
This study shows that liquidity risk has a great impact on the performance of manufacturing companies. ROA has significant relation with LNTA, LATA and QR but insignificant with LNTSF. EPS has significant relation LNTSF, LATA and LNTA with but insignificant with QR.
Keywords
Liquidity risk, performance, manufacturing sector.
Paper Type
Research Paper
Introduction
Managing liquidity in an organization is very important and a difficult task.
Liquidity risk of an organization is measured through different liquidity ratios. Liquidity risk means the payment of current liabilities of a business. Liabilities of a business include operating and financial expenses that are made to obtain a long term loan to expand a business. It will increase the performance of a business. Return on assets is one of the ratios that will be used in this study to check the performance and is calculated with net profit and total assets. To calculate liquidity risk, quick ratio is also calculated with liquid assets and current liabilities. Other ratios used to calculate liquidity risk and its impact on performance are loan to total assets, loan to short term financing, earning per share and loan to assets.
There is a general principle about liquidity and profitability is that to gain one, give up other. In this era of high competition, most of the businessmen used aggressive strategy to increase profitability. While using this strategy,
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