Evaluation of Profitability and Liquidity Relationship through Multivariate Working Capital Analysis

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.

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