Firm size and solvency in Indian pharmaceutical sector: A relational co-movement analysis

Abstract

The financial size of the firm can be defined based on sales, working capital (WC), and total assets of the business organization. Two terms i.e. liquidity and solvency are to be used to measure the paying ability of the business. The liquidity is a short-term approach while solvency is the long-term approach of redemption of long-term debts (LTDs). The study investigates the relationship between size determinants and solvency of the Indian pharmaceutical business organization as few studies available that explain the relationship between the size of the firm and solvency in the pharmaceutical industry. The study considers the data of the selected pharmaceutical companies in India for the period 2013-2018. Two approaches are to be used to analyze the solvency i.e. solvency against ownership and solvency against the total assets (TA). Ratio analysis is the basis of the study and Spearman’s rank correlation is calculated to get the relative relationship between size and solvency of the Indian pharmaceutical companies. The result of the relative study shows the positive and moderate correlation between the size determinants and solvency of the Indian pharmaceutical companies.

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