Relationship Between Liquidity and Profitability: A Study of Listed Telecommunication Firms in Colombo Stock Exchange (CSE), Sri Lanka

Accounting

This study has analyzed Liquidity and profitability among listed telecommunication firms in Sri Lanka. The data utilized in this study is extracted from the annual reports over a period of past 5 years from 2015 to 2019 of the two telecommunication firms namely Dialog Axiata plc and Sri Lanka telecom plc listed in the Colombo Stock Exchange (CSE) database. This represents 100% of the firms listed under the telecommunication sector in Sri Lanka. The main objective of study was to examine the nexus between liquidity and profitability in telecommunication firms. The study was carried out by analyzing the two firms’ profit measured by return on assets and return on equity as the dependent variable and the cash position as liquidity measure in relation to the revenue, total assets and current liabilities as the independent variables. Pearson correlation analysis was used to find out the relationships between these variables and regression analysis was used to find out the impact of liquidity on profitability. SPSS was used to support the analysis and to provide a basis for the conclusions drawn. Based on the descriptive analysis, there is no big fluctuation in the cash position ratios, return on equity and return on assets among Dialog Axiata plc and Sri Lanka telecom plc. Based on the correlation analysis, there is no significant relationship between cash position ratios and return on equity & assets in the Sri Lanka telecom plc and Dialog Axiata plc in the Sri Lankan context. Further, both companies’ liquidity ratios not present the significant influence or impact on the profitability measures in the Sri Lankan context.

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