An Empirical Study on the Relationship between Profitability and Liquidity Performance of Listed Sugar Companies in India

Abstract

The relationship between liquidity management and the profitability performance of listed sugar companies in India between 2011-12 and 2020-21 is empirically examined in this study. Using panel data from 27 BSE listed companies, the study examines whether liquidity and profitability performance of particular companies are related. Return on Assets, Return on Equity, and Net Profit Margin are used to measure profitability, while Current Ratio, Quick Ratio, and Cash Ratio are used to measure liquidity. Average Collection Period, Inventory Conversion Period, Average Payment Period, and Cash Conversion Cycle are among the working capital management elements that are also examined. The study finds strong positive correlations between liquidity ratios and profitability metrics using panel regression models and Pearson correlation analysis. The results imply that, when effectively managed, liquidity and profitability can be complimentary rather than competing goals in the context of India's sugar sector, which is marked by cyclical production patterns and significant working capital intensity. These findings enlighten investors about financial health indicators, give financial managers useful information about the best way to allocate working capital, and help legislators comprehend industry-specific issues.