Liquidity, leverage, and solvency: What affects profitability of industrial enterprises the most?

Author:

D. Ayoush Maha1ORCID,A. Toumeh Ahmad1ORCID,I. Shabaneh Khaled2

Affiliation:

1. Ph.D. Assistant Professor, Al-Zaytoonah University of Jordan

2. Master, Research Assistant, Al-Zaytoonah University of Jordan

Abstract

The purpose of this paper is to show the relative impact of liquidity, leverage, and solvency on profitability of industrial enterprises listed on the Amman Stock Exchange to ascertain which of them has the most effect on profitability. To reach the objectives of this study, 44 Jordanian industrial companies are examined from 2012 to 2018. Return on assets (ROA) and return on equity (ROE) are examined as measures of performance, current ratio and quick ratio as measures of liquidity, debt ratio and debt to equity ratio as measures of leverage, and the interest coverage ratio as a measure of financial solvency. Multiple regression analysis was used to check the hypotheses. A negative and statistically significant impact was found at the 1% level between financial leverage and profitability. At the same time, findings did not show the same for the effect of liquidity and solvency on profitability. In addition, leverage has the highest relative impact among independent variables on profitability, followed by solvency and then liquidity. Moreover, it is indicated that company size is a control variable of the effect between liquidity, leverage, and solvency on performance. Thus, it is concluded that management of industrial companies should reduce dependence on debt to finance companies to achieve the highest possible returns; it is recommended to maintain an acceptable level of liquidity to ensure the continuity of companies and attention to the level of solvency within companies to maintain a high financial performance.

Publisher

LLC CPC Business Perspectives

Subject

Strategy and Management,Economics and Econometrics,Finance,Business and International Management

Reference26 articles.

1. Akenga, G. (2017). Effect of liquidity on financial performance of firms listed at the Nairobi Securities Exchange, Kenya. International Journal of Science and Research, 6(7), 279-285. - https://www.ijsr.net/get_abstract.php?paper_id=ART20175036

2. Al-Ali, A. (2018). The effect of financial leverage on liquidity and profitability: An applied study on a sample of companies listed on the Damascus Securities Exchange. Al-Baath University Journal, 40(1), 173-205. (In Arabic). - http://search.mandumah.com/Re- cord/901271

3. Ali, M. (2014). Relationship between Financial Leverage and Financial Performance (Evidence of Listed Chemical Companies of Pakistan). Research Journal of Finance and Accounting, 5(23), 46-56. - https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.662.9837&rep=rep1&type=pdf

4. Aliwi, N. (2019). The effect of financial leverage on the financial performance of the Jordanian public joint-stock companies listed on the Amman Financial Market (Master Thesis). Middle East University.

5. Determinants of Profitability: Evidence from Industrial Companies Listed on Muscat Securities Market

同舟云学术

1.学者识别学者识别

2.学术分析学术分析

3.人才评估人才评估

"同舟云学术"是以全球学者为主线,采集、加工和组织学术论文而形成的新型学术文献查询和分析系统,可以对全球学者进行文献检索和人才价值评估。用户可以通过关注某些学科领域的顶尖人物而持续追踪该领域的学科进展和研究前沿。经过近期的数据扩容,当前同舟云学术共收录了国内外主流学术期刊6万余种,收集的期刊论文及会议论文总量共计约1.5亿篇,并以每天添加12000余篇中外论文的速度递增。我们也可以为用户提供个性化、定制化的学者数据。欢迎来电咨询!咨询电话:010-8811{复制后删除}0370

www.globalauthorid.com

TOP

Copyright © 2019-2024 北京同舟云网络信息技术有限公司
京公网安备11010802033243号  京ICP备18003416号-3