A study on the financial performance of NALCO with reference to liqidity and profitability

Abstract

Capital is the life blood of every business organization. Without its proper management, it is difficult on the part of any business enterprise to strive in the competitive world. Moreover, sufficient liquid funds i.e. working capital is essential for every business enterprise because liquidity plays an important role in maintaining smooth operations of firms. On the other hand, profitability is also a crucial factor that backs to the very survival of the business enterprise. The survival of a business enterprise very much depends on the profit earning ability of the concerned enterprise. Thus, profitability is the main indicator of the efficiency and effectiveness of a business organization. Hence, liquidity and profitability are two major aspects of financial management to assess a business organisation s health status. Therefore, there is a need to maintain the right balance between liquidity and profitability to ensure the survival of the business organisation and to keep on generating adequate rate of return to satisfy the stakeholders. newlineImportance of the Study newlineLiquidity and profitability are two important indicators that reveal the short term solvency and profit earning potentiality of a business enterprise respectively. No doubt, these two indicators are closely related to each other, but they have inverse relationship. In other words, when one increases, the other one will decrease and vice-versa. Therefore, the finance manager has to strike a balance between liquidity and profitability so that the business operations will run uninterrupted and the organisation will generate enough revenue for its long term survival, growth and expansion in future. In this context, it is necessary to examine the relationship between liquidity and profitability and how liquidity effects profitability in a business organisation. Therefore, in this study NALCO, a public sector undertaking has been selected as a sample unit to examine the liquidity and profitability position of the said company. Apart from this, the impact of