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Research Proposal
Topic:
"Impact off liquidity on profitability"
Submitted to:
Mam sundas
Submitted by:
Maha Riasat. 14-154
Ambreen Tariq. 14-111
Momina sultan. 14-121
Semester :
BBA 7th( S.S)
1.5 Variables
DEPEDENT
DEPEDENTVARIABLES
INDEPENDENT VARIABLES
VARIABLES INDEPENDENT VARIABLES
Current
Return
Returnononasset
asset Currentratio
ratio
Return Quick ratio
Returnononequity
equity Quick ratio
Cash
Cashratio
ratio
1.5.1 Dependent variables
Khan and Mutahhar Ali (2016) state that there is positive relationship between the
liquidity and profitability.
The current ratio and quick ratio was consider as measure of liquidity and Gross profit
margin and Net profit margin ratios were consider as measure of profitability.
Ibe (2013) discusses that the liquidity management is an important problem in the
Nigeria.The data is collect from three banks which is selected randomly represent the
whole banking sector of Nigeria.
Profitability represents the after tax profit dependent variable and the liquidity
management is independent variable which include the Bank cash assets , Bank
Balance, Treasury Bills and certificate. Regression is used to analysis the data.
Macharia(2013)state that liquid asset are less profitable as compare to long yerm
asset and most of the firm manager try to invest in profitable projects and he study
on 44 banks among time period of(2008-2012).he study the secondary data on
determining thr profitability and liquidity .used regression model to establishing the
relation between variables.The study recommends that the finance managers of
commercial banks maintain a balance between the level of liquid assets and long term
assets to reinforce each of the
conflicting objectives of maintaining adequate liquidity and sustainable profitability.
Ismail(2016) firstly discuss the financial crisis that they can also effect the
profitability of a firm they gathered the data by examining the non financial firm and
take data from KSE after this discuss the profitability and liquidity ratio variable and
state that high conversion ratio increase in current ration leads/increase the firm
profitability.
3.Data and sample selection
The purpose of this study is to analyze the impact of the liquidity on the profitability
of the Pakistani banking sector(HBL,UBL,MCB and ABL) constituting KSE 100
Index.The dependant variables that we used for studying
profitability(ROA,ROE,ROI).Here three ratios are consider in calculating the"
imapact of liquidity on profitability of banking sector " independent variables are
(quick ratio,current ratio and capital ratio). While the whole data that we collect is
secondary.
3.1 ROA
Profitability is assessed relative to costs and expenses, and it is analyzed in
comparison to assets to see how effective a banking sector is. The term return in the
ROA ratio customarily refers to net profit or net income, the amount of earnings from
sales after all costs, expenses and taxes.
3.2 ROE
It is a ratio that concerns a company's equity holders the most, since it measures their
ability of earning return on their equity investments. ROE may increase dramatically
without any equity addition when it can simply benefit from a higher return helped by
a larger asset base
4. Research methodology
Research Models
The following two models represent the research models:
The first and second model measures the effect of the liquidity on profitability in the
pakistani commercial banks, where return on equity (ROE) and return on
assets(ROA) was the proxy for profitability.
OLS(operating least square) and sample Statistics are used in evaliating the result that
is regression and coefficient Mean,S.D,and standard error or t-test were also used.
5. Results and discussion
As overall results of all banks shows each bank phase decline in their profit due to
the element of liquidity and economy fluctuations.so liquidity have significant
effect on profitability of banking sector.
Discussion and ResultsThis study has examined the impact of the liquidity
management on the performance of the Pakistani Firms constituting KSE 100
Index. The results of regression analysis have been discovered in Table 3. The
regression analysis results indicate that high current ratio and longer CCC lead
firms towards better performance in terms of return on assets. The study found
that current ratio has a significant positive impact on ROA of the sampled
firms. This result is consistent with the studies of Ahmed (2013); Bolek (2013);
Alavinasab and Davoudi (2013); Ajanthan (2013); Manyo and Ogakwu (2013);
Ajao and Small (2012); Azam and Haider (2011); Haq et al. (2011); Rahman
(2011) and Zainudin (2006). Current assets are useful for firms to withstand
and survive in a financial distress situation. Additionally, business expansion
programs require enough cash assets to maintain day-to-day operations alongside
the long-term external financing. Cash and quick ratios show insignificant
association with the performance of sampled firms. Further, the results of a
regression show that there is a significant positive relationship exists between
cash cycle and return on assets. The result of study is consistent with the
study Bagchi et al. (2012) based on Spearman’s correlation coefficient and
regression analysis. A significant positive relationship between CCC and ROA
tells that a longer cash conversion process will result an increase in sales and
profits. The longer cash cycle can make the firms approachable for a large
number of customers; which can in turn increase the volume of revenue
generated during the period. This study suggests sampled firms to relax their
credit sales policies, and devise inventory & collection turnover system in a
wise manner to be more accessible to a large number of customers. This study
also suggests managers to pay business’ obligations in a reasonable period to
ensure smooth functions and credit benefits. This measure will enhance their
performance and revenues in the future. The availability of historical data was
an issue to extend the study area. It is a recommendation for further research
to consider an increased number of the companies listed on Karachi Stock
Exchange with some different variables of liquidity and profitability and recent
statistics of companies. results of fours models show positive impact and two
models shows a negative effect. The empirical consequences deliver also the
conclusion that the profitability of banking sector can be increased together
with the growth of the number of accounts payables days. From the analysis,
we conclude that for banks to resolve the liquidity/profitability trade-off, there
is need for each bank to determine its optimal liquidity position. Recommendation
There is need for banks to engage competent and qualified personThis research
paper is examined on the impact of liquidity on profitability of the banking sector of
Pakistan constituting 8 years of eight banks. And the Liquidity have much money in
cash.Based on the research findings, the researcher concluded that, there is an
effect of the liquidity management on profitability in the Jordanian commercial
banks as measured by ROE or ROA, where the effect of the investment ratio and
quick ratios on the profitability is positive when measured by ROE, and the effect
of capital ratio on profitability is positive as measured by ROA, and the effect of
the other independent variables on the two measures of profitability (ROE and
ROA) is negative, the researcher thinks that this negative effect is due to the
increased volume of untapped deposits at the Jordanian commercial banks.
6. Conclusion
This research paper shows the impact of liquidity on profitability on banking sector
of pakistan for period of 2006-2010.The analysis in this paper show the relation of
dependent to independent variables and the variables relationship show that there is
a negative impact of liquidity on profitability if its not determine its position.From
the analysis, we conclude that for banks to resolve the liquidity/profitability trade-off,
there is need for each bank to determine its optimal liquidity position and the role of
SBP to take timely corrective measures. Measures include relaxation of CRR and SLR
in phases
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7. References
1: Khan, R.,Ali,M.(2016):impact of liquidity on profitability of commercial banks in
pakistan:An analysi of banking sector in Pakistan.
6: Maqsood, T., Anwar, M., Riaz, A., ijaz, M. and shouqat, U. (2016):impact of
liquidity management on profitability in banking sector of pakistan.