Exploring Liquidity-Profitability Nexus: A Reference of Modaraba Companies

Abstract

Optimal tradeoff between liquidity and profitability is an imperative phenomenon that demands pragmatic managerial focus in almost every organization. The study emphases to measure and analyzes the empirical relationship between liquidity and profitability of 26 Modaraba companies operating in Pakistan. Secondary data for 2006-2012 have been analyzed using descriptive statistics, Pearson correlation, multiple regression and SPSS (version 20) used for data analysis. Empirical findings reveal that profitability of Modaraba companies operating in Pakistan has not been significantly influenced by liquidity indicators, only CATCL has a significant control over ROA and LTITTA has strong positive and significant impact on ROE. It is suggested that more evidences required from financial and non-financial sector in testifying the theoretical association of liquidity and profitability. Either liquidity of Modaraba companies has an impact upon solvency, leverage or efficiency that is a separate prospective horizon.