IMPACT OF LIQUIDITY ON PROFITABILITY OF MANUFACTURING COMPANIES IN NEPAL

Abstract

This study investigates the impact of liquidity on profitability in Nepalese manufacturing banks. Descriptive and causal research design has been employed in this study. This study used descriptive analysis, correlation analysis and multiple regression analysis to analyze the data. This study shows that there is strong liquidity position in terms of current ratio and quick ratio and also strong profitability position of sample manufacturing companies in term of ROA and ROE means sample companies earns in relative to its total resources. The correlation analysis shows that current ratio has significant positive correlation with ROA and insignificant positive relationship with ROE. Similarly, quick ratio has significant positive correlation with ROA and insignificant positive association with ROE. Moreover, correlation of leverage ratio has significant negative relationship with profitability (ROA and ROE) of manufacturing companies in Nepal. The study also reveals that current ratio has insignificant negative impact on profitability (ROA and ROE) of the manufacturing companies. At the same time, quick ratio has no significant positive impact on profitability (ROA and ROE) of manufacturing companies in Nepal whereas leverage ratio has significant negative impact on profitability (ROA and ROE) of the companies. Therefore, this study concluded that there is insignificant effect of liquidity on profitability of manufacturing companies in Nepal.