Analysis of Liquidity Management and Trade-Off Between Liquidity Risk and Profitability-An Empirical Study

Abstract

The study is based on different measures to assess the qualitative efficiency of liquidity m management and liquidity, risk and profitability trade-off It reveals that the overall performance regarding liquidity management at Infosys Technologies Limited was very good from the creditors' point of view but to the management's point of view, it reflects bad financial p7lanning and inefficient tie up of liquid funds. The company maintained an excess amount of liquid funds during the period of study and its investment in current assets in relation to total assets was also high. But it should greater efficiency both in working capital turnover and in realization of receivables. Although the behavior patterns of the different indices indicate the sound liquidity management of the company, yet a few suggestions have been offered to improve certain factors like reduction in current assets through maintaining its optimum level, prompt recovery of debts through the preparation of periodical reports of the overdue, maintaining a definite proportion am Ong the various components of working capital on the basis of past experience and strengthening the cash position through reducing the level of investment in current assets and collecting what is outstanding properly. The negative correlation between liquidity and profitability was an alarming feature, reflecting the unfavorable effect of liquidity on profitability. There is mildly positive association between the risk and profitability. It indicates that the high degree of conservative policy adopted by the com Pany has made a negative impact on its profitability.