TRADE-OFF BETWEEN LIQUIDITY AND PROFITABILITY: AN EMPIRICAL STUDY OF PHARMACAUTICAL SECTOR IN THE REPUBLIC OF NORTH MACEDONIA
Journal
Timisoara Journal of Economics and Business
Date Issued
2019
Author(s)
Snezhana Hristova, Dushica Stevchevska-Srbinoska, Ivona Mileva and Angela Zafirova
DOI
10.2478/tjeb-2019-0007
Abstract
The relationship between liquidity and profitability is one of
the most interesting topics in the corporate finance re-
search. Having in mind that the pharmaceutical industry is
one of the most competitive sectors globally and that its
substantial investments in research and development make
this industry a key asset for a country’s economic well-being,
this paper examines the liquidity-profitability trade off in
pharmaceutical sector of RNM. The empirical research en-
gages the secondary annual financial report data of the two
pharmaceutical companies listed on Macedonian Stock
Exchange (MSE) over the period from 2006-2016. Current
ratio (CR), quick ratio (QR) and cash ratio (CAR) were used
as measures of liquidity while return on assets (ROA) and
return on equity (ROE) were used to measure profitability as
a dependent variable. The statistical tests used to evaluate
the effects of liquidity on profitability involved descriptive
statistics, correlation and regression analysis. The findings
suggest that there is no significant relationship between
profitability and liquidity determinants of the listed North
Macedonian pharmaceutical firms. Regarding practical
implications, these findings can help managers overcome
dilemmas with respect to the liquidity and profitability trade-
off. Furthermore, this study contributes to the existing re-
search base in this field and represents one of the pioneer
attempts in the case of RNM. The results gained from the
research are very important for companies themselves, but
they can also serve as a starting point for future research to
eliminate financial and other corporate issues related to the
relationship between profitability and liquidity determinants.
the most interesting topics in the corporate finance re-
search. Having in mind that the pharmaceutical industry is
one of the most competitive sectors globally and that its
substantial investments in research and development make
this industry a key asset for a country’s economic well-being,
this paper examines the liquidity-profitability trade off in
pharmaceutical sector of RNM. The empirical research en-
gages the secondary annual financial report data of the two
pharmaceutical companies listed on Macedonian Stock
Exchange (MSE) over the period from 2006-2016. Current
ratio (CR), quick ratio (QR) and cash ratio (CAR) were used
as measures of liquidity while return on assets (ROA) and
return on equity (ROE) were used to measure profitability as
a dependent variable. The statistical tests used to evaluate
the effects of liquidity on profitability involved descriptive
statistics, correlation and regression analysis. The findings
suggest that there is no significant relationship between
profitability and liquidity determinants of the listed North
Macedonian pharmaceutical firms. Regarding practical
implications, these findings can help managers overcome
dilemmas with respect to the liquidity and profitability trade-
off. Furthermore, this study contributes to the existing re-
search base in this field and represents one of the pioneer
attempts in the case of RNM. The results gained from the
research are very important for companies themselves, but
they can also serve as a starting point for future research to
eliminate financial and other corporate issues related to the
relationship between profitability and liquidity determinants.
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