Impact of Liquidity and Solvency on Profitability- An Empirical Analysis of the Pharmaceuticals and Chemicals Sector of Bangladesh

ABSTRACT: This study evaluates the impact of liquidity and solvency on profitability using a sample of 29 Dhaka Stock Exchange (DSE)- listed pharmaceutical and chemical companies. Companies’ financial statements from 2017 to 2021 were used to collect the secondary data. Descriptive statistics and linear regression were used. The regression findings reveal that there is no significant relationship between liquidity (current ratio, acid-test ratio) and profitability as measured by ROE and ROA. The relationship between solvency (debt-to-equity, debt-to-assets) and profitability as measured by ROE and ROA is statistically significant. Current ratio, debt-to-equity, debt-to-assets have positive impact on ROE and acid-test ratio has negative impact on ROE. The other part of the result concluded that acid-test ratio, debt-to-equity have positive impact on ROA and current ratio, debt-to-assets have negative impact on ROA.

Keywords: Liquidity, Solvency, Profitability, ROE, ROA.