LIQUIDITY AND ITS EFFECT ON PROFITABILITY IN SELECTED FAST MOVING CONSUMER GOODS COMPANIES IN INDIA: A STUDY

Abstract

The present study is an attempt to examine the effect of liquidity on profitability in FMCG companies in India. 20 FMCG companies have been selected from those listed in NSE and BSE, of which 10 companies are the highest profit earning companies and 10 companies are running at loss for the period1999-2000 to 2013-2014. The study indicates that the overall liquidity position of the FMCG companies is good and there is a close and statistically significant association among the selected indicators of liquidity performance and the overall liquidity of FMCG companies in the first half of the study period is better than that in the second half.The present paper uses two alternative models for measuring the profitability viz. Return on Assets (ROA) and Return on Investment (ROI).The study shows that if current assets decreases then profitability increases and shorter the cash conversion cycle, higher is the profitability. The study observes that the companies with smaller size experience wide fluctuations in profitability and vice versa. The study also confirms that variation in profitability does not differ significantly across the companies in respect of their inventories.