INTRODUCTION
1.1 Background to the Study
The
financial performance of companies is a subject that has attracted a lot of
discussions by various people such as financial experts, researchers, the
general public and the management of corporate entities. The Financial
performance of a firm can be analyzed in terms of profitability, dividend
growth, sales turnover, and return on investments among others. However, there
is still debate among several disciplines regarding how the performance of
firms should be measured and the factors that affect financial performance of
companies (Liargovas and Skandalis, 2008). According to Iswatia and Anshoria
(2007) performance is the function of the ability of an organization to gain
and manage the resources in several different ways to develop competitive
advantages.
Liquidity refers to investment in current
assets and current liabilities which are liquidated within one year or less and
is therefore crucial for firm’s day to day operations (Kesimli and Gunay,
2011). It refers to the ability of a firm to meet short term financial
obligations by converting the short term assets into cash without incurring any
loss. According to Ngwu (2006) liquidity
management is the act of storing enough funds and raising funds quickly from
the market to satisfy customers and other parties with a view to maintain
public confidence. Liquidity refers to the ability of the business to meet its
cash obligations within a specific time period. Assets are considered to be
high-quality liquid assets if they can be easily and immediately converted into
cash at little or no loss of value. Markets are considered to be liquid when
those who have assets holdings can sell them at prices that do not involve
considerable losses so as to gain the finances they need to fulfill other
commitments.
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