Srusti Management Review (Jun 2017)
Impact of Short-Term Solvency on Operational Efficiency: A Study on Cement Industry
Abstract
The purpose of this paper is to measure/assess the link between short-term solvency and operational efficiency of selected cement companies in India. The researcher has collected, compiled and analysed publicly available data. The data for the study are different financial ratios. Short-term solvency of the sample companies is measured from the current ratio whereas operational efficiency is accessed from P ratios. These ratios are collected from the Annual Reports of selected companies over the period 2003 to 2012. Descriptive as well as inferential statistical tools are used to draw conclusions. The result suggests that the liquidity and profitability of the sample companies are not uniform and the association between quick ratio and operational efficiency is negative. The study depends more on empirical procedures rather than a theoretical justification. The research is totally based on publically available information and limited with regard to the time span and sample size. No holdout sample has been used. The entire data set is subjected to simple statistical analysis. This to some extent limits the findings and implications. Profitability and liquidity give importance on two different aspects. Liquidity gives importance on holding a huge investment in liquid assets whereas profitability suggests a low level of investment in liquid assets. Simply the managers have to make a trade-off between these two decisions for the smooth running of the business. The present study focuses on two issues - does the increase in profitability affect the liquidity of an organisation? Are these ratios of companies in the same industry similar?
