Liquidity Management and Its Effect on Profitability in a Tough Economy: (A Case of Companies Listed on the Ghana Stock Exchange)

Abstract

Liquidity management, especially at the wake of the global financial crisis, has become a major source of concern for business managers as bank loans are becoming too expensive to maintain as a result of tightening of both the local and international financial market and the reluctance of the public to invest in the share of companies as a result to the crash of the capital market. This research work measures the relationship between liquidity and profitability and its effect on profitability in a tough economy using data from all the 33 companies listed on the Ghana Stock Exchange. The result of the study was obtained using descriptive analysis and the finding shows that liquidity measured in terms of the companies Cash Conversion Cycle, Average Collection Period and Average Payment Period have no statistical significant on profitability and it is concluded that managers can increase profitability by putting in place good credit policy, short cash conversion cycle and an increase in current ratios.