The Relationship Between Liquidity and Profitability of Firms Listed at the Nse

Abstract

This study examined the relationship between liquidity and profitability for companies listed at the Nairobi Stock Exchange. The objective of the study was to establish the relationship between liquidity and profitability over the short and medium term between 2004 and 2009. Using descriptive research design, a sample of 41 companies listed at the NSE between 2004 and 2006 was used. Regression analysis of Return on Assets (ROA) as a measure of profitability and Current Ratio (CR) as a measure of liquidity was done. One way ANOVA was also used to test whether a low liquidity level will derail the upkeep- of high profitability. The key findings from the study revealed a negative relationship between liquidity and profitability. It was also observed that low liquidity does not influence upkeep of high profitability but low profitability influences the upkeep of high liquidity in the medium term. v