Distinguish between profitability and liquidity.
The major differences between profitability and liquidity are as follows −
- 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.
- 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.
Published on 25-Sep-2020 17:26:03