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Investigating Liquidity-Profitability Relationship: Evidence from Companies Listed in Saudi Stock Exchange (Tadawul)

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  • Mohammed Ziaur Rehman Muhammad Nauman Khan
  • Imran Khokhar

Abstract

The growth and survival of business houses hinges on the liquidity and profitability. The dexterity to lever between the two domains is of paramount significance for the financial managers. The current study makes an earnest endeavor to investigate the relationship between liquidity and profitability of companies listed in Saudi Stock Exchange (Tadawul). The study encompasses 99 listed companies in Tadawul. The data are culled and collated from audited annual financial statements of listed companies for a period of five years from 2008 to 2012. The profitability facets of the companies are represented by the variables, namely, Return on Assets (ROA) and Return on Equity (ROE). The liquidity of the companies is gauged by current ratio, quick ratio and the absolute liquid ratio. The overall results revealed that there is only one positive significant relationship between Return on Assets (ROA) and Current Ratio (CR) of the companies in Saudi Arabia. Further, it is revealed that there is negative but insignificant relationship between the Return on Assets (ROA) and Quick Ratio (QR) & Cash Ratio (CHR) of the companies in Saudi Arabia. Likewise in the case of Return on Equity (ROE), there is insignificant relationship with the three selected independent variables, namely, Current Ratio (CR), Quick Ratio (QR) and Cash Ratio (CHR).

Suggested Citation

  • Mohammed Ziaur Rehman Muhammad Nauman Khan & Imran Khokhar, 2015. "Investigating Liquidity-Profitability Relationship: Evidence from Companies Listed in Saudi Stock Exchange (Tadawul)," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(3), pages 1-11.
    • Handle: RePEc:spt:apfiba:v:5:y:2015:i:3:f:5_3_11
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    1. Najib H.S. Farhan & Eissa Alhomidi & Faozi A. Almaqtari & Mosab I. Tabash, 2019. "Does Corporate Governance Moderate the Relationship between Liquidity Ratios and Financial Performance? Evidence from Indian Pharmaceutical Companies," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, November.
    2. Mohammad Yameen & Najib H. S. Farhan & Mosab I. Tabash, 2019. "The Impact of Liquidity on Firms’ Performance: Empirical Investigation from Indian Pharmaceutical Companies," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, November.
    3. Shireen Mahmoud Alali, 2019. "The Impact of Bank Liquidity on the Profitability of Commercial Banks: An Applied Study on Jordanian Commercial Banks for the Period (2013/2017)," International Journal of Economics and Financial Issues, Econjournals, vol. 9(5), pages 24-28.
    4. Kumaresan, Renuga, 2019. "The Effects of Macroeconomics Factors towards the Starbucks Corporation," MPRA Paper 97243, University Library of Munich, Germany, revised 15 Nov 2019.
    5. BartEomiej Pilch, 2021. "Dependencies between financial ratios among companies listed on the Warsaw Stock Exchange," Zeszyty Naukowe Małopolskiej Wyższej Szkoły Ekonomicznej w Tarnowie / The Malopolska School of Economics in Tarnow Research Papers Collection, Malopolska School of Economics in Tarnow, vol. 50(2), pages 37-51, June.
    6. Dedi Kusmayadi & Yusuf Abdullah & Irman Firmansyah, 2022. "Master of Management Program, Faculty of Postgraduate, Siliwangi University, Tasikmalaya, Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(1), pages 23-31.
    7. Sardar Shaker Ibrahim, 2017. "The Impacts of Liquidity on Profitability in Banking Sectors of Iraq: A Case of Iraqi Commercial Banks," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 113-121, January.
    8. Mazurina Mohd Ali & Nik Noor Ayu Nik Hussin & Erlane K. Ghani, 2019. "Liquidity, Growth and Profitability of Non-financial Public Listed Malaysia: A Malaysian Evidence," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(3), pages 194-202, May.
    9. Richard Arhinful & Mehrshad Radmehr, 2023. "The Impact of Financial Leverage on the Financial Performance of the Firms Listed on the Tokyo Stock Exchange," SAGE Open, , vol. 13(4), pages 21582440231, November.
    10. H. Khoj & H. Akeel, 2020. "Testing Weak-Form Market Efficiency: The Case of Saudi Arabia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(6), pages 644-653, June.
    11. RukhsanaRasheed & Mehwish Shahid & Munaza Mukhtar & Mazhar Nadeem Ishaq, 2022. "Impact of Capital Structure and Liquidity Conditions on the Profitability of Pharmaceutical Sector of Pakistan," iRASD Journal of Management, International Research Alliance for Sustainable Development (iRASD), vol. 4(2), pages 135-142, june.
    12. Masri, Hatem & Abdulla, Yomna, 2018. "A multiple objective stochastic programming model for working capital management," Technological Forecasting and Social Change, Elsevier, vol. 131(C), pages 141-146.
    13. Jacek Jaworski & Leszek Czerwonka, 2021. "Meta-study on the relationship between profitability and liquidity of enterprises in macroeconomic and institutional environment," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(2), pages 233-246, June.

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