Sie sind auf Seite 1von 25

An empirical study on the relationship between

Profitability Ratio
&
Liquidity Ratio
Sheikh Nasir Uddin
H. M. T. Tarikul Kamrul
Sadia
Abstract

Financial ratios often act as a yardstick for the board of directors or shareholders (present
and would-be as well) to measure a company’s performance. These ratios also serve as a
means to examine and establish new propositions and hypotheses. These ratios can be
obtained or derived from the corresponding organization’s financial statements. Likewise,
to find out a relationship (or no-relationship, at all) between two important ratios, namely,
profitability and liquidity ratio, we used and dissected financial statements of three
organizations. We focused on a particular industry to avoid confusion and interruption of
too many unaccounted factors. We took data of three financial institutions to judge the
hypothesis that profitability and liquidity ratios indeed do have a relationship.

Objective

The main objective of this paper is to examine and observe the relationship between two
important types of financial ratios, liquidity and profitability ratios in context of financial
organizations. A trend analysis has also been done of these two through this process.
Introduction

Financial statement analysis is a technique that is used frequently to analyze accounting


and other data. Financial ratios represent short-term measures of operating performance
rather than the more relevant long-term performance. Profitability and liquidity ratios are
twp such measures that help provide an overview of a company’s operation and
performance. Profitability ratios measure the firm's use of its assets and control of its
expenses to generate an acceptable rate of return where as Liquidity ratios measure the
availability of cash to pay debt. Theoretically these two have no certain intersecting point
as both are calculated considering different factors related. Moreover, conventional
financial statement analysis alone is not sufficient to serve as a basis to judgment and
come upon a decision. But as per the requirements of the course we proceed with the
financial data available and tried to come to a conclusion.
Methodology

The information required to prepare the report was obtained from the annual reports of
the three financial institutes, Delta Brac Housing Finance Corporation Ltd., Premier Bank
and Union Capital Limited. Since we cannot avail more, we took 5 year’s data from each
of these companies. Among various methods of profitability ratios we chose 5, Operating
Income Ratio, Net Income Ratio, Return on Asset Ratio, Return on Equity Ratio and
Earning per Share (EPS). And we compare each of these ratios with 3 types of liquidity
ratio, Current Ratio, Quick Ratio and Debt-Equity Ratio.

We used the Spearman's Rank Correlation* to establish whether there is any relationship
between Profitability ratio and Liquidity ratio.

* Spearman's Rank Correlation is a technique used to test the direction and strength of the relationship
between two variables. In other words, it’s a device to show whether any one set of numbers has an effect
on another set of numbers. It uses the statistic Rs which falls between -1 and +1.
Brief descriptions of the samples considered
A. Delta Brac Housing Finance Corporation Limited (DBH):

(DBH) is the pioneer, the largest and the specialist Housing Finance Institution in the
private sector of the country. After commencing operation in the early 1997, the company
has registered commendable growth in creating home ownership among more than 7,500
families in Dhaka and other major cities of the country. At the same time, the company
has been playing an active role in promoting the real estate sector to the large cross
sections of prospective clients who had but yet unfulfilled dream of owning a sweet
home.

Among all Banks and Financial Institutions of Bangladesh only DBH has been rated the
highest 'AAA' credit rating. The level of credit rating provides a very important indication
of the financial safety, security and strength of the concerned Bank or Financial
Institution and is particularly relevant to its depositors and other investors such as
shareholders and lenders.

DBH is an international joint venture organization promoted by five institutions: three


local shareholder organizations and two international partners.

Local Promoters

Delta Life Insurance Company Limited-The leading life insurance company in the
private sector of the country.

BRAC- The largest national NGO of the world, having deep presence in the country and
contributing in the socio-economic development of the country.

Green Delta Insurance Company- The leading and pioneer general insurance company
in the private sector of the country

International partners
HDFC: A pioneer in the area of private sector housing finance in India and the most
successful housing finance institution in the South Asia bring to DBH technological and
business expertise making the proper recommendations in relation to products, policies,
systems and procedures
IFC: The private sector arm of the World Bank Group. Both local and foreign
shareholders come together with an objective to channel resources into providing finance
for the people’ basic need for shelter, enhance housing stock of the country and promote
affordable home ownership.

B. Premiere Bank Limited


The Premier Bank Limited is incorporated in Bangladesh as banking company on June
10, 1999 under Companies Act.1994. Bangladesh Bank, the central bank of Bangladesh,
issued banking license on June 17, 1999 under Banking Companies Act.1991. The Head
Office of The Premier Bank Limited is located at Banani, one of the fast growing
commercial and business areas of Dhaka city. At present there are 27 branches and 8
proposed branches.

C. Union Capital Limited


Union Capital Limited is one of the largest investment banks and fastest growing
financial institutions in Bangladesh. Previously, it was known as Peregrine Bangladesh
which had its origins and businesses rooted in Hong Kong. Out of the local office of the
erstwhile Peregrine Capital Limited of Hong Kong, Union Capital Limited, Dhaka
emerged in early 1998 as a Bangladesh-based company led by a group of the foremost
entrepreneurs of the country. Union Capital, within a short span of time, has proved its
worth as a most forward-working vigorous organization achieving success with its wide
international network and strong local base.

Union Capital is an entrepreneurial company that prides itself on its speed of through and
action. Its ability to make decisions quickly and efficiently and to generate value as an
agent and executor sets it apart from all other investment banks and financial institutions
in Bangladesh. The company's strategy is to focus on Bangladesh and to develop a truly
global distribution network through the major investment institutions abroad. SES
Company Limited, which is wholly owned by Union Capital, has seats in both the Dhaka
and Chittagong stock exchanges. This provides Union Capital with unmatched local
distribution capabilities to retail and institutional investors throughout the world in
relation to securities originating in Bangladesh.

Union Capital is dedicated to provide a high level of professional and personalized


service to its domestic and international clients. Preferential treatment and superior
service to clients is what the company believes to be its ultimate goal.

As a full-service investment bank, Union Capital offers public issue management,


portfolio management, merger & acquisition, joint venture, corporate finance advice,
securities dealing, research and underwriting capabilities in the financial markets of
Bangladesh. Union Capital also offers capital market fund-raising expertise which is
supported by a global distribution network. The company's strong business contacts
provide it with unrivalled access to investment opportunities for multi-national and local
companies seeking sound and properly financed business projects in Bangladesh.

Union Capital is the only institution having three unique advantages in common, which
no other institutions can match in the capital market of Bangladesh. Union Capital is –

>> SEC approved Merchant Banker (Investment Banking concern),

>> Central Bank (the Bangladesh Bank) licensed Financial Institution, and
>> On-the-ground access to the Stock Exchanges through wholly owned
subsidiary company, which has Corporate Memberships both at Dhaka and
Chittagong stock exchanges.

Union Capital is a public limited company having a profitable and dividend payment
track record.
Theories behind the Analysis at a glance

Liquidity Ratios

Liquidity Ratios are used to indicate a company’s short-term debt-paying ability.

1. Current Ratio: Current Assets


Current Liabilities
A company’s current assets divided by its current liabilities is known as current ratio and
tests the short-term debt paying ability of a firm.

2. Quick Ratio: Quick Assets


Current Liabilities
The quick or act ratio tests a company’s ability to meet short-term obligations without
having to rely on inventory. It determines the immediate debt paying ability of a firm.

3. Debt-to-Equity ratio: Total Liabilities


Stockholders' equity
The debt to equity ratio indicates the relative proportion of debt and equity on the
company's balance sheet.

Profitability Ratios

Operating Income Ratio, Net Income Ratio, Return on Asset Ratio, Return on Equity
Ratio and Earning per Share (EPS)

Return on Equity (ROE)

Net Income
Average stockholders’ equity

From the stockholder’s point of view, an important measure of the income producing
ability of a company is the relationship of net income to average common stockholder’s
equity also called the return on equity (ROE).

Earnings per Share (EPS): Earnings available to common shareholders


No. of shares outstanding

The earning per share is the most widely used measure of a company’s operational
success. It is very important to the investors since it indicates how much they can earn on
each share. The EPS usually plays a major role in determining the market price of a
share.
Procedure for using Spearman's Rank Correlation

1. State the null hypothesis i.e. "There is no relationship between the two sets of
data."
2. Rank both sets of data from the highest to the lowest. Make sure to check for tied
ranks.
3. Subtract the two sets of ranks to get the difference d.
4. Square the values of d.
5. Add the squared values of d to get Sigma d2.
6. Use the formula Rs = 1-(6Sigma d2/n3-n) where n is the number of ranks you have.
7. If the Rs value...
... is -1, there is a perfect negative correlation.
...falls between -1 and -0.5, there is a strong negative correlation.
...falls between -0.5 and 0, there is a weak negative correlation.
... is 0, there is no correlation
...falls between 0 and 0.5, there is a weak positive correlation.
...falls between 0.5 and 1, there is a strong positive correlation
...is 1, there is a perfect positive correlation
between the 2 sets of data.
8. If the Rs value is 0, state that null hypothesis is accepted. Otherwise, say it is
rejected.

The following hypotheses have been tested while we applied the Spearman’s Rank
Correlation.

H0: There is no significant relationship between the Profitability and the Liquidity.

H1: There is a significant relationship between the Profitability and the Liquidity.
Interpretation of the Financial Ratios

A. DBH:

(i) Liquidity Ratio:

Company’s current ratio is in increasing trend. It implies that the company is managing
its assets efficiently. Quick ratio of the company is also in rapid growing trend. It shows
that the company’s liquidity situation is very good. But still the point is below 2 for both
current and quick ratio. The company still has more potential improve the liquidity
situation. Debt to equity ratio of the company is in a steady situation. It shows that the
investors can continue to invest in this company.

Current Ratio Quick Ratio:

2
1.3
1.2 1.5
1
1.1
1
0.5
0
0.9
2002- 2003- 2004- 2005- 2006- 2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
year year

Debt-Equity Ratio

15
10
5
0

2002- 2003- 2004- 2005- 2006-


2003 2004 2005 2006 2007
year

(ii) Profitability Ratio:

Operating ratios and Net income ratios are in decreasing trend for the company. The
company needs to continue its current profitability growth in the future to retain the
investors’ confidence on the company.
Operating Income Ratio Net Income Ratio

40 20
30 15
20 10
5
10
0 0

2002- 2003- 2004- 2005- 2006- 2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Year Year

Return on equity and asset both are in growing situation. It shows the company
management is managing the company asset effectively and efficiently to have more
return on investment of the stakeholders. Also EPS for the stakeholders are growing
rapidly for the company.

RETURN ON ASSET RATIO: DBH RETURN ON ASSET RATIO: DBH EPS: DBH

3.4 50 60
3.2 40 50
3 30 40
30
2.8 20
20
2.6 10 10
2.4 0 0
2002- 2003- 2004- 2005- 2006- 2002- 2003- 2004- 2005- 2006- 2002- 2003- 2004- 2005- 2006-
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Year Year Year

B. Premiere Bank:

(i) Liquidity Ratio:

Current and quick ratio is in decreasing trend for the company. It shows that company is
not in a good condition to re-pay its debt in the short term. Also the debt to equity ratio is
in increasing trend, which shows the debt situation is worsening for the company.
Quick Ratio: Premiere

2.5

1.5

0.5

0
2001 2002 2003 2004 2005 2006

Year

Current Ratio
2.5
2

1.5
1

0.5
0

2001 2002 2003 2004 2005 2006

Year

Debt to Equity: Premiere

25

20

15

10

0
2001 2002 2003 2004 2005 2006

Year

(ii) Profitability Ratio:

Company’s net income and operating income ratio both are in decreasing trend. Also the
Return on Asset and Return on Equity of the company is not in a good trend. EPS is also
decreased in the recent years for the company. It shows that company‘s profitability
situation is not in a very good shape. Company needs turn around the current profitability
situation immediately to regain and sustain the investors’ confidence and reliability on the
company.
Operating Ratio

120
100
80
60
40
20
0

2001 2002 2003 2004 2005 2006

Year

Net Income Ratio

40

30

20

10

2001 2002 2003 2004 2005 2006

Year

ROA

6
5
4
3
2
1
0

2001 2002 2003 2004 2005 2006

Year
ROE

35
30
25
20
15
10
5
0

2001 2002 2003 2004 2005 2006

Year

EPS

100

80

60

40

20
0

2001 2002 2003 2004 2005 2006

Year

C. Union Capital Limited:

(i) Liquidity Ratio:


Current and quick ratio (both are same) of the company is in slight decreasing trend in the
recent year. Also the debt to equity ratio is in decreasing trend. It implies that company’s
strong debt paying ability is deteriorating in the recent time, which needs s to control by
the management.

Current/Quick Ratio

2.5
2

1.5
1

0.5
0

2001 2002 2003 2004 2005 2006

Year

Debt to Equity Ratio

10
8

2001 2002 2003 2004 2005 2006

Year
(ii) Profitability Ratio:

Company’s net income and operating income scenario at its peak in 2005, but the
company lose its growing trend in 2006. Also Return on Asset and Return on equity are
not stable for the company. EPS is in decreasing trend for the company for last 6 years. It
shows, the company is heavily investing in the company.
Operating Ratio: Union Net Income Ratio: Union

35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006

Year Year

ROA: Union

6
5
4
3
2
1
0
2001 2002 2003 2004 2005 2006

Year

ROE: Union EPS: Union

25 7
6
20
5
15 4

10 3
2
5
1
0 0
2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006

Year Year

Analysis Based on Spearman’s Rank Correlation

A. DBH:

(i) Current Ratio and Operating Income Ratio:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is
-0.4. It shows a weak negative correlation between the two.

(ii) Current Ratio and Net Income Ratio:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.5.
It shows a weak positive correlation between the two.

(iii) Current Ratio and Return on Asset:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.5.
It shows a weak positive correlation between the two.

(iv) Current Ratio and Return on Equity:

Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.5.
It shows a weak positive correlation between the two.

(v) Current Ratio and EPS:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.8.
It shows a strong positive correlation between the two.

(vi) Quick Ratio and Operating Income Ratio:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is
-0.7. It shows a Strong negative correlation between the two.

(vii) Quick Ratio and Net Income Ratio:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.3.
It shows a weak positive correlation between the two.

(viii) Quick Ratio and Return on Asset :


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.3.
It shows a weak positive correlation between the two.

(ix) Quick Ratio and Return on Equity:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.7.
It shows a Strong positive correlation between the two.

(x) Quick Ratio and EPS:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 1.
It shows a perfect positive correlation between the two.

(xi) Debt to equity Ratio and Operating Income Ratio:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is
-0.7. It shows a Strong negative correlation between the two.

(xii) Debt to equity Ratio and Net Income Ratio:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.
It shows no correlation between the two.

(xiii) Debt to equity Ratio and Return on Asset:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.
It shows no correlation between the two.

(xiv) Debt to equity Ratio and Return on Equity:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 1.
It shows a Perfect Positive correlation between the two.

(xv) Debt to equity Ratio and EPS:


Calculating the last 5 years ratio, rank correlation coefficient of the above two ratio is 0.9.
It shows a Very Strong Positive correlation between the two.

From the rank correlation findings, we can see that Current ratio and Quick ratio are
correlated with the company’s operating and net income and also with the Return on asset
and Return on Equity. The ratios are highly correlated with EPS of the company.
Moreover company’s operating income is negatively correlated with the current and
quick ratio. The fact shows that when you better manage or pay your interest and debts to
the creditors, your operating profit goes down. It implies that the firm’s asset
management system will highly impact on its profitability. Company’s debt-equity ratio
highly correlated with net income, return on equity and EPS. On the other hand debt-
equity ratio has no correlation with net income and return on asset. It shows that
company’s debt paying status is highly correlated with its net income and shareholder’s
earnings.

B. Premiere Bank:
(i) Current Ratio and Operating Income Ratio:
Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.54. It shows a Strong positive correlation between the two.

(ii) Current Ratio and Net Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.42. It shows a weak positive correlation between the two.
(iii) Current Ratio and Return on Asset:
Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.48. It shows a weak positive correlation between the two.

(iv) Current Ratio and Return on Equity:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.77. It shows a Strong positive correlation between the two.

(v) Current Ratio and EPS:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.02. It shows a very weak positive correlation between the two.
(vi) Quick Ratio and Operating Income Ratio:
Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.54. It shows a Strong positive correlation between the two.

(vii) Quick Ratio and Net Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.48. It shows a weak positive correlation between the two.

(viii) Quick Ratio and Return on Asset :


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.42. It shows a weak positive correlation between the two.

(ix) Quick Ratio and Return on Equity:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.66. It shows a Strong positive correlation between the two.

(x) Quick Ratio and EPS:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.08. It shows a very weak positive correlation between the two.

(xi) Debt to equity Ratio and Operating Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.77. It shows a Strong negative correlation between the two.
(xii) Debt to equity Ratio and Net Income Ratio:
Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.77. It shows Strong negative correlation between the two.

(xiii) Debt to equity Ratio and Return on Asset:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.7. It shows Strong negative correlation between the two.

(xiv) Debt to equity Ratio and Return on Equity:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.66. It shows a Strong negative correlation between the two.
(xv) Debt to equity Ratio and EPS:
Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.14. It shows a Very weak negative correlation between the two.

From the rank correlation findings, both Current and quick ratio are positively correlated
with the entire profitability ratio. Among the profitability ratio, the liquidity ratios has
strong correlation with the Operating income and Return on Equity of the Shareholders.
On the other hand the profitability ratios have strong negative correlation with the debt-
equity ratio. It implies that as the company debt-equity ratio gone high, the company’s
profitability will hamper.
Null hypothesis is rejected. Profitability and Liquidity are closely related with one
another.

C. Union Capital Limited

(i) Current Ratio and Operating Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is 0.6.
It shows a strong positive correlation between the two.

(ii) Current Ratio and Net Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.77. It shows a strong positive correlation between the two.

(iii) Current Ratio and Return on Asset:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.03. It shows a weak negative correlation between the two.

(iv) Current Ratio and Return on Equity:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.71. It shows a Strong negative correlation between the two.

(v) Current Ratio and EPS:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.48. It shows a weak negative correlation between the two.

(vi) Quick Ratio and Operating Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is 0.6.
It shows a Strong positive correlation between the two.

(vii) Quick Ratio and Net Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.77. It shows a strong positive correlation between the two.
(viii) Quick Ratio and Return on Asset:

Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.03. It shows a weak negative correlation between the two.

(ix) Quick Ratio and Return on Equity:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.71. It shows a Strong negative correlation between the two.

(x) Quick Ratio and EPS:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.48. It shows a weak negative correlation between the two.
(xi) Debt to equity Ratio and Operating Income Ratio:
Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is -1.
It shows a perfect negative correlation between the two.

(xii) Debt to equity Ratio and Net Income Ratio:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.94. It shows a very strong negative correlation between the two.

(xiii) Debt to equity Ratio and Return on Asset:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
-0.6. It shows a strong negative correlation between the two.

(xiv) Debt to equity Ratio and Return on Equity:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.09. It shows a very weak negative correlation between the two.

(xv) Debt to equity Ratio and EPS:


Calculating the last 6 years ratio, rank correlation coefficient of the above two ratio is
0.08. It shows a weak Positive correlation between the two.

From the rank correlation findings, we can see that current and quick ratio both have
strong positive correlation with the company’s operating income and net income and
negative correlation with company’s ROA, ROE and EPS. On the other hand debt-equity
ratio has strong negative correlation with operating income, net income, ROA of the
company and positive correlation with Shareholder’s earnings.

Considering the Total Rank Correlation Coefficient Ratio

A. DBH:
Total rank correlation coefficient of Profitability Ratios and Liquidity Ratio are 0.8. This
shows a very strong positive correlation between the two.
So, the null hypothesis is rejected.

B. Premiere Bank:
Total rank correlation coefficient of Profitability Ratios and Liquidity Ratio are 0.64. This
shows a very strong positive correlation between the two.
So, the null hypothesis is rejected.

C. Union Capital Limited:


Total rank correlation coefficient of Profitability Ratios and Liquidity Ratio are 0.51. This
shows a very strong positive correlation between the two.
So, the null hypothesis is rejected.

Profit and Liquidity Trend:


A. Union Capital
From the actual profit and total asset figures of the Union Capital limited, we can see that
the profit is closely correlated with the current asset or liquidity condition of the
company. In 2005 company made the highest profit, when company’s current assets were
also highest and in 2006 the profit drops as a consequence of company’s current asset
loss.
Profitability (Mill.)

45 40
40
35 29
30
25
Profit

Profit (Mill)
20 14
13 11 11
15
10
5
0
2001 2002 2003 2004 2005 2006
Year

Current Asset (Mill)

300 267
237
250 225

200

150
Current Asset (Mill)
100

50

0
2001
-9 2002
-7 2003
-7 2004 2005 2006
-50

B. Premiere Bank
Premiere Banks profitability and current asset was correlated in last couple of years. As
we can see, Premiere bank earn the highest profit in 2004 when company’s current asset
increase by huge margin. We can see negative correlation between profitability and
current asset of the company in last two years. Though company’s current asset increase,
but profit falls in back to back two years. It is due to failure of efficient banking operation
of the bank managements, as they are unable to give required loans and creditors to the
customer.
Profitability (Mill)

500

400

300
Profit (Mill)
Profit
200

100

0
2001 2002 2003 2004 2005 2006
Year

Current Asset (Mill)

30000

25000

20000
Asset Value

15000 Current Asset (Mill)

10000

5000

0
2001 2002 2003 2004 2005 2006
Year

C. DBH:
DBH’s profitability and liquidity situation is fully related with one another as one grows
another follows and vice versa. The company is growing in a consistent way in last five
years and profitability is highest in the last year when liquidity condition is also at it
peaks.
Profitability (Mill)

160
140
120
100
80 Profit (Mill)
Profit
60
40
20
0
2001 2002 2003 2004 2005
Year

Current Asset (Mill)

3000

2500

2000

1500 Current Asset (Mill)


Value

1000

500

0
2001 2002 2003 2004 2005
Year

From the above analysis we can strongly say that, Profitability and liquidity of the above
company is strongly correlated with one another, which is also supported by the rank
coefficient correlation analysis earlier. So, report Null hypothesis is strongly rejected.
Conclusion
Bibliography
Both the Accounting books of our course.

Das könnte Ihnen auch gefallen