Publication Date


Document Type


First Advisor

Kreidle, John R.||Casebier, Eleanor

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Finance


Liquidity (Economics); Corporations--United States--Finance


Statement of the Problem It was the purpose of this study to determine if there is relationship between the liquidity and profitability of the corporation. More specifically, this study is concerned with the following subproblems: 1. With liquidity being the independent variable (X variable), and profitability being the dependent variable (Y variable), is there a significant correlation between liquidity and profitability? 2. Is there a significant correlation between previous movements of liquidity and movements of profitability? Conclusions The pursuit of profitability and liquidity goals is one of the fundamental aspects of the management of assets. Generally, it is expressed by writers in the field of finance that there is conflict between these goals. The disagreement centers around how the asset structure, and more specifically how the liquid assets affect profitability. In order to determine the statistical relationship between liquidity and profitability, twenty-five corporations over the eight year period, 1958 to 1965, were analyzed. The statistical technique of simple linear correlation was utilized to determine the statistical relationship. T The results of this study indicated that, in general, there is a statistically significant relationship between liquidity and profitability. However, the relationship was not strong enough to allow accurate forecasting of profitability based upon liquidity. Nor was the relationship strong enough to indicate the intentional manipulation of the liquidity posture could significantly affect the profitability of the corporation. The results of this study tended to substantiate the writings of people in the field of finance. This was true, even though it appeared that the authors' statements concerning the relationship between liquidity and profitability were in conflict. Some authors believe that a decreasing cash position will be associated with increasing profitability. The results of this study indicated that there was a negative relationship. That is, a decreasing cash position is associated with increasing balance sheet profitability ratios. Another theory holds that an increasing cash position will be associated with increasing profit on sales. The results of this study indicate that a positive association exists. In other words, an increasing or decreasing cash position can be associated with increasing or decreasing profitability. The ratios used have a direct effect upon this relationship. Consequently, when speaking of the relationship between liquidity and profitability,specific ratios should be mentioned.


Includes bibliographical references.||Includes illustrations.


41 pages, 25 unnumbered pages




Northern Illinois University

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