Effect of Liquidity and Capital Structure on Financial Performance: Evidence from banking Sector

Abstract

This research is titled as the impact of liquidity and capital structure on the financial performance of Cement sector firm. Capital structure and liquidity both play a vital role in growth and profitability of the firm. The data of fifteen cement sector firms were randomly analyzed, for the period of 2008 to 2014. The statistical approaches i.e. correlation, fixed effect, random effect and hausman tests were applied. The results indicated that all capital structure variables, i.e. Debt to equity, debt ratio, funded capital ratio and Funded debt ratio has negative relationship with firm financial performance of these selected cement sector firms. The results also indicated that liquidity proxies, i.e. quick ratio and current ratio have significant positive impact on the financial performance of these cement sector firms. On the bases of the findings of this study it is suggested that these firm’s manager should take care of its capital structure proxies as it negatively impacting its financial performance. On the bases of findings it is also advised that these managers should further improve the mechanism of liquidity.

Keywords: Liquidity, Capital Structure, Financial Performance, Correlation, Fixed and Random