Introduction

1. Background of the study

There are many factors by which measure the performance of a firm in which some factors are return on
investments, profitability, return on assets, sales turn over, dividend growth but the main aim of these
factors to determine the performance of a firm. Performance basically is the ability of an organization to
gain and manage the resources in the best way to get competitive advantage over competitors

basically we measure the performance of a firm through liquidity. Liquidity is more important for a firm
success or failure in business performance because its effect the firm profitability and Performance.
liquidity is actually investing in current assets and current liabilities. Mostly if a firm have high liquidity
than it has negative relationship with the performance of the firm. Which means that a firm highly
investing in their short term assets instead of long term assets and by which the performance of the firm
will decrease. But if look to the 2008 crisis, the performance of were better of that firms which have high
liquidity as compare to that firms which have shortage of liquidity (according to ). It means that liquidity
is of important factor to measure the performance of a firm.

Different researches have different opinion about liquidity and its relationship with profitability. Some of
them thought that the relationship between working capital management and profitability is a positive,
while some have the opinion that there is negative relationship between profitability in liquidity. efficient
working capital management plays a vital and significant role in the profitability and performance of a
firm and the most important for firm to minimize the risk or control the risk through those liquidities
which is properly managed in a way to increase the sales and manage those debts which is we will pay in
future with interest. If a firm have more liquidity and generating more profits mean that customers getting
that from firm could pay to us because firm have more liquidities so firm maintain to public confidence.

Liquidity is actually play a significant or major role for a firm. and also make a firm profitable and
successful. If a firm manage their liquidity so obviously the firm will be profitable and perform very well.
And they can also maximize the profit as well through liquidity. There are two indicators for the
performance of a firm which is more significant and important one is liquidity and second is profitability
basically important for potential investors and shareholders similarly for both of them. In corporate
finance there will be must trade-off between liquidity and profitability to improve the performance pf a
firm.

There are many different ratios by which we can measure the liquidity include current ratio and quick
ratio

Current ratio current is basically show us the short term financial position of a firm. formula of
current ratio current assets divided by current liabilities. current assets are those resources which
assumed to cash within one year like cash, bank deposits, marketable securities, account receivable etc.
And current liabilities are actually short term liabilities which you have to be paid in one year one year like
account payable, short term loans, cash credit and over draft, outstanding expenses etc. so when we
calculated the current ratio the current ratio tell us about the firm liquidity position. For example, if a firm
current liability is more than from current assets so its mean that the firm cannot pay or meet their current
liabilities. When a firm current liability is less than from current assets so its mean firm is in comfortable
position. In this situation firm can easily meet short term liabilities.

Quick ratio In financial affairs, rapid proportion is also known as the acid test ratio [1] The follow-up
ratio is [2] that the company's ability to use the nearest future cash-free money or money to make its
current obligations as soon as possible. Return soon. In the quick assets he has the existing assets that
can easily get closer to his book values to cash money. It is the ratio of fast or liquid assets and current
obligations.

 Financial performance Although "functionality" is a simple

concept, there is no unique definition in literature. In
addition, academics often work for specific researches that
are used to suit individual research papers (Lynx-Smith, used
in 1997). Financial activities often use key functionality key
function indicators such as returning return assets, Lower
operating costs, income prior to profit and financial,
economic value or increased sales (Internet Explorer and
Larker, 1997; Raquel and Vancouver, 2000; Cranberry and DE
Busk, 2008). The amount of this is their general presence, as
every effective organization produces (Financial and Langfeld-
Sumit 2007) to report financial fiscal for this financial
data. However, balance balancing and accounting methods may be
possible It also guides the values that allow restricting the
financial fiscal of companies only.
The ratio is best used whenever compared to comparison or quality
than other sources, such as industry standards or "superior class
inside industry". Such comparisons help in identifying financial
goals and identifying difficulties. Vertical and Horizontal Analysis
may also be used to identify easy changes inside financial balances.

Effect of liquidity on financial performance

There are many trends that affect the follow-up of financial activity.
According to Chandra (2001), the highest follow-up is usually a sign
of fiscal power, although according to some authors (2003), high-
leveling may be as low as a sudden. This will be the result of the
fact that the current assets are generally less useful if proven real
estate. This means that investing in existing assets assets produce
less revenue, then the represented property represents it.
Additionally, the money used in current assets enhances additional
costs for maintaining, thus reducing the company's profitability.
However, Arnold (2008) indicates the points that offer some benefits,
as per (1) pay for daily expenses, such as salaries, goods and
finances. (2) Due to the fact that future cash payments Unsafe, cash
payments provide the state of safety for the last loss. And indeed,
(3) guarantees the most profitable investments of cash ownership that
will be paid immediately.
That is why it is a key task for the financial manager to get the proper
balance between the proper adjustment and proper introduction to the company.
Therefore, the Probably, Periera and David (2007), decision-making decisions
should be based on the desired attribute.
The importance of follow-up in the company's function is to conclude that it
defines the company's profitable level. This subject was the subject of many
ideas and experiences of studying among others (Smith, 1980; Shen and Swine,
1988; Deloof, 2003; eljelly, 2004; Lazanidis and Tryfonidis, 2006; Padma,
2006; gill, biger and Mathur. 2010; Antarie and Reza, 2012; Bamboo - - and
Markner - Solano, 2012; Ovaloli and Oda, 2012). Therefore, it should be
emphasized that even though some studies do not fully recognize the
effectiveness of the follow-up on the use of the follow-up.
The obligation required for the company is available. It has an effect on
spending reduction or growth, financially changing changes, and also on the
risk of company's risk. The obligation decision is that it is important for
the company's development and at the same time it is one of the main reasons
for the company's market responsibility. An effective individual management
value at WCM was also found in an investigation by Garcia-Terrell and Martin-
Solano (2007). They studied the effectiveness of the working capital on the
SME use of Spain and consequently that additional value can be used by
reducing institutes and through daily accounting accounts. Summary of cash
conversion systems can be a tool for profitable benefits.

Research problem

The obligation indicates the merit of the business capability to meet the
cash-in-charge of the particular time period. They have ideas that are
credible and obligatory, but they are not equal, without meaning. Compared to
the benefit, cash money loans include debt real estate, asset and family life
expenses. The benefits of cash money such as depreciation, value of
individual changes, or investment achievements and losses are not included.
The regulations are the best amount of cash money statements or budgets. When
companies have problems with obligations, they may pay for loans that are
harmful for companies and may result in many outcome results such as future
credit terms in the future. It effectively affects the beneficiaries in the
long run.

According to NSE (2010), in the past decade, some public and private
companies are under legal management due to obligations. One of the most
important examples is the Ultimate Supermarket Lime. Her annual report (2005)
reported that the company had the location of cash money, to maintain its
customers' connections and appropriate items.

Company regulations directly influence the company's profits. This subject

was the subject of many ideas and experiences of studying among others
(Smith, 1980; Shen and Swine, 1988; Deloof, 2003; Algali, 2004; Lausedis and
Typhandes, 2006; Padma, 2006; Gale, Lovely and Morta. 2010; Antarie and Reza,
2012; Bamboo - Cable, Garcia - Terrell and Markner - Solano, 2012; Ovaloli
and Oda, 2012). Meta Vista (2009) Work on the benefit of 30 companies in the
Nairobi Stock exchange list analyzed the impact of the ingredients. Use this
cash collection system to measure the investment of working. Studies in this
subject show that inferiority of the market enhances the growth of over 20
active functions.

Although multiple studies have been conducted, the impact of the follow-up on
the benefit is still not fully recognized. Therefore, the main objective of
this study is the response to the current study. What is the effect of the
follow-up on financial activity of non-financial companies listed in the
Nairobi accounting exchange?