The Relationship between Liquidity Ratios and Profitability and Repayment Ability of Debts

Subject Areas :

Zohreh Hajiha ¹ (استادیار گروه حسابداری دانشگاه ازاد اسلامی واحد تهران شرق)
Fereshteh Feizabadi ² (کارشناس ارشد حسابداری دانشگاه آزاد اسلامی واحد اسلامشهر)

Received: 2015-05-07 Accepted : 2015-05-07 Published : 2013-11-22

Keywords: Cash conversion cycle, Profitability Ratios, Debts Ratios, Quick and Current Ratio,

Abstract :

The main objective of this study is to examine the relationship between cash conversion cycle(CCC) as a liquidity measure with the profitability and debt ratios in Iranian companies. Researches indicate the decreasing of CCC results in a higher profitability in firms. The CCC is a powerful performance measure to assess how well a company is managing its working capital. Therefore, the population of this study is firms listed in Tehran stock Exchange during the period of 2006 to 2009. By random sampling, we ed 178 firms as a statistical sample. The hypotheses are examined using panel least squares, analyzing with cross section random and fixed. The results indicate that there is a significant relationship between the CCC and net profit margin; however, there is no relationship with traditional liquidity and leverage ratios. The findings imply that the CCC is a stronger measure for profitability measurement than traditionally liquidity ratios but each liquidity ratios could not measure the ability to repay liabilities. Although, reducing the trend to ray the seller, could damage the firm's credit reputation.

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