LIQUIDITY – PROFITABILITY RELATIONSHIP: A STUDY OF TEN LEADING FMCG COMPANIES IN INDIA

The study sought to find out the relationship between the liquidity and the profitability of ten leading FMCG companies in India. The study was descriptive in nature. Document analysis was the main research procedure adopted to collect secondary data for the study. The financial reports of the ten leading FMCG companies were studied and relevant liquidity and profitability ratios were computed. Liquidity and Profitability are the most noticeable issues in the corporate finance literature. Liquidity refers to the financial ability of the firm to meet the short term obligations as and when they arise. Profitability is the profit earning capacity which is a crucial factor contributing for the survival of the firms. The ultimate goal for any firm is to maximize profitability. However, finance literature says too much attention on profitability may lead the firm into a pitfall by diluting the liquidity position of the company. The research paper mainly focuses on analyses of relationship between liquidity and profitability of selected FMCG companies in India during period of 2005-06 to 2014-15; the tools used for analysis are Spearman's Rank correlation and t-tests. It was found that both the liquidity and the profitability of the selected FMCG companies were hovering. Again, it was also found that there was a very strong positive relationship between the liquidity and the profitability of the selected FMCG companies in India.