The Relationship between Liquidity and Profitability of Listed Banks in Ghana

Abstract

The study sought to find out the relationship between the liquidity and the profitability of banks listed on the Ghana Stock Exchange. Seven out of the nine listed banks were involved in the study. The study was descriptive in nature. It adopted the longitudinal time dimension, specifically, the panel method. Document analysis was the main research procedure adopted to collect secondary data for the study. The financial reports of the seven listed banks were studied and relevant liquidity and profitability ratios were computed. The trend in liquidity and profitability were determined by the use of time series analysis. The main liquidity ratio was regressed on the profitability ratio. It was found that for the period 2005-2010, both the liquidity and the profitability of the listed banks were declining. Again, it was also found that there was a very weak positive relationship between the liquidity and the profitability of the listed banks in Ghana.