Impact of Liquidity Ratio on Profitability

Dependent Variables
Return on Assets (ROA) = Net Profit Before Tax/total assets
Return on Equity (ROE) = Net Profit Before Tax/Shareholders Equity
Return on Investment (ROI) = Net Profit Before Tax/Investment
Independent Variables
Current Ratio = Current assets/Current Liabilities
Acid Test or Quick Ratio= Current assets-Inventories /Current Liabilities
Liquidity Ratio =Cash + Investment/ Current Liabilities

1.ROA=Return on Assets = 2.00241202676767 -0.888199450693355* Current Ratio=Current Assets/Current L

Period

1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008

ROA=Retu
rn on
Assets
0.19
0.18
0.17
0.21
0.23
0.19
0.21
0.21
0.21
0.21
2.30
0.17
2.07
0.21
0.20
0.22
0.21

Current
Ratio=Current
Assets/Current
Liabilities
0.15
0.14
0.14
0.15
0.17
0.13
0.16
0.14
0.15
0.15
1.5
0.11
1.38
0.14
0.12
0.13
0.10

Summary for the independent and

dependent variables:

Variables

Mean

Standard
deviation

ROA=Return on Assets

18

0.420

0.643

Current Ratio=Current Assets/Current

Liabilities

18

1.781

0.497

Goodness of fit coefficients:

R (coefficient of correlation)

0.687

R (coefficient of determination)
Radj. (adjusted coefficient of
determination)

0.472

SSR

3.709

0.439

Evaluating the information brought by the variables (H0 = Y=Moy(Y)):

Source
Model

Sum of
squares

DF

Mean square

3.310

3.310

Residuals

16

3.709

0.232

Total

17

7.018

Fisher's
F
14.278

Pr >
F
0.00
2

Model parameters:

Parameter

Standard
deviation

Value

Intercept
Current Ratio=Current Assets/Current
Liabilities

Student's t

Pr > t

2.002

0.434

4.616

0.000

-0.888

0.235

-3.779

0.002

The equation of the model writes: ROA=Return on Assets = 2.00241202676767 -0.888199450693355*

Current Ratio=Current Assets/Current Liabilities
Descriptive statistics:

N
ROA=Return on Assets

Current Ratio=Current Assets/Current Liabilities

Mean

Variance

Standard
deviation

18

0.420

0.413

0.643

18

1.781

0.247

0.497

Fisher's F test:

F (observed value)
F (critical value)

1.67
3
2.67
3

DF 1

17

DF 2
Two-tailed p-value

17
0.29
8

Alpha

0.05

Conclusion:
At the level of significance Alpha=0.050 the decision is to not reject the null hypothesis of equality of the
variances.
In other words, the inequality (Variance1 <> Variance2) is not significant.

Levene's test:
F (observed value)
F (critical value)
DF 1
DF 2
One-tailed p-value
Alpha

1.085
5.499
1
34
0.305
0.05

Conclusion:
At the level of significance Alpha=0.050 the decision is to not reject the null hypothesis of equality of
the variances.

2. ROE=Return on Equity = 5.53704220993141 -7.57257036324705*Acid Test Ratio or Quick

Ratio

Period
1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007

ROE=Retu
rn on
Equity
0.51
0.55
0.53
0.60
0.69
0.73
0.87
0.95
1.01
1.07
10.86
0.84
1.04
1.16
1.16
1.38

Acid Test Ratio or

Quick Ratio
0.85
0.75
0.85
0.84
0.72
0.66
0.57
0.57
0.51
0.46
0.00
0.45
0.42
0.43
0.40
0.38

2007-2008
2008-2009

1.63
1.29

0.38
0.37

Summary for the Independent and

dependent variable:

Variable
ROE=Return on Equity

18

Mean
1.493

Standard
deviation
2.359

18

0.534

0.217

Acid Test Ratio or Quick

Ratio

Goodness of fit
coefficients:
R (coefficient of
correlation)
R (coefficient of
determination)
Radj. (adjusted
coefficient of
determination)
SSR

0.697
0.486
0.454
48.637

Evaluating the information

brought by the variables
(H0 = Y=Moy(Y)):

Source
Model
Residuals
Total

Model parameters:

DF
1
16
17

Sum of
squares
45.989
48.637
94.627

Mean square
45.989
3.040

Fisher'
sF
15.129

Pr > F
0.001

Parameter
Intercept

Value
5.537

Standar
d
deviatio
n
1.118

Student's t
4.953

Pr > t
0.000

Acid Test Ratio or Quick

Ratio
-7.573
1.947
-3.890
0.001
The equation of the model writes: ROE=Return on Equity = 5.53704220993141 -7.57257036324705*
Acid Test Ratio or Quick Ratio

Student's t test for independent samples / two-tailed test:

The test is computed under the assumption that the two theoretical variances are equal -0.175
to 2.094

t (observed value)
t (critical value)
DF
Two-tailed p-value
Alpha

1.718
2.032
34
0.095
0.05

Conclusion:
At the level of significance Alpha=0.050 the decision is to not reject the null hypothesis of equality of the means
In other words, the difference between the means is not significant.