Relationship between Liquidity and Profitability in Indian Automobile Industry

For a business, accounting liquidity is a measure of their ability to pay off debts as they come due, that is, to have access to their money when they need it. In practical terms, assessing accounting liquidity means comparing liquid assets to current liabilities, or financial obligations that come due within one year. There are a number of ratios that measure accounting liquidity, which differ in how strictly they define liquid assets. (Investopedia. com). On the other hand profitability is the ability of a company to use its resources to generate revenues in excess of its expenses. For any business the Tradeoff between the profitability and liquidity is important, thus the aim of the business is to maintain a proper level of the current funds or liquidity. That was the reason behind the current study where it is to be checked out that whether the automobiles industry is making a perfect balance between the liquidity and profitability or not. It was found that the profitability and liquidity has similar changes in most of the cases in the different companies and the correlation was found to be significant and positive between the liquidity and profitability.