An Empirical Study on the Relationship of Profitability and Liquidity Management of some select Listed Oil Companies in India

Abstract

The study is related to the profitability and liquidity management of the Indian oil industry over 15 years (financial years 2009-10 through 2023-24). Liquidity management is also known as the management of working capital, which is represented by WCM. Using panel data from major oil-sector companies, profitability was measured by Return on Assets, Return on Capital Employed, Net Profit Ratio and Profit before Interest & Tax. Working-capital measures include Current Ratio, Quick Ratio, Debt-to-Equity Ratio, Proprietary Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio, and Creditors Turnover Ratio. Firm size (log of assets) is included as a control. Correlation and company-fixed-effects regressions (OLS with clustering by company) were estimated.

Results show a significant inverse relationship between CTR (creditors’ turnover) and PBIT, while most WCM variables do not show strong, consistent coefficients in the fixed-effects regressions. Inventory and receivables turnover show low positive correlation with ROA / ROCE, but are not robustly significant in the regressions. The composite company ranking (based on averaged profitability measures) places GSPL, IGL and OIL among the top performers. Managerial implications emphasise efficient inventory/receivables management and strategic use of payables without compromising supplier relationships.