Distinguish between profitability and liquidity.

Banking & FinanceFinance ManagementGrowth & Empowerment

The major differences between profitability and liquidity are as follows −

Profitability

  • Profit made by the company in a period/during a year.
  • May not have enough liquidity.
  • A company which is profitable can go for bankrupt if it does not have liquidity in short term.
  • Present in income statement.
  • Determines Gross profit margin, net profit margin, EBIDTA margin, EBIT margin, CAGR.
  • Measures financial performances.
  • Tells about how good is company is able to generate margins form its business.
  • Long term.

Liquidity

  • How much of cash is available by a company at point of time.
  • May not be profitability.
  • A company which has liquidity but nor profitable can’t go for bankrupt.
  • Present in balance sheet.
  • Determines current ratio, acid test ratio, quick ratio, interest coverage ratio, fixed coverage ratio.
  • Measures cash position.
  • Tells about how good company is able to convert its sales into cash.
  • Short term.
raja
Published on 25-Sep-2020 17:26:03
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