Which companies are more profitable these days

Liquidity and profitability - one does not exclude the other

If you take a closer look at companies, the focus in the analysis is often on liquidity and profitability. But these are two dissimilar sisters. Sometimes they get along, but one of them is often dominant.


The advantage of high liquidity is that all claims against the company are covered at all times. All payments can therefore be made. Total assets provide information about liquidity

The opposite of liquidity is usually called under-liquidity and means that the company is partially insolvent. The most negative case is illiquidity. The company is permanently insolvent.


Profitability, on the other hand, is about how economically a company operates. The aim is to be able to settle all costs in one financial year (often identical to a calendar year).

These costs are paid from the operating services. However, profitability also means that a company achieves a certain profit that is appropriate in relation to sales. This ratio is called return on sales or return on sales.


High liquidity and profitability are not mutually exclusive. In reality, however, one of the two usually predominates. It can happen that a profitable company is not liquid at the same time. That just means that it cannot currently pay the outstanding receivables. However, it is able to settle the bills in the course of a fiscal year.

Conversely, high liquidity does not necessarily mean profitability. Just because the company has a lot of money at its disposal doesn't mean the business is profitable. Return on sales key figure: How much each euro generated brings in

Ideally, liquidity and profitability run somewhat in parallel. But this also means that the liquidity is used for new investments, which in turn increase profitability. Alternatively, if profitability drops, you can also use liquidity to cushion a crisis.

The interaction between liquidity and profitability is one of the key factors for long-term business success.

Liquidity and Profitability: Conclusion

Another factor is the liquidity risk. If liquidity falls, entrepreneurial risks arise because this can lead to temporary insolvency.

It's a bit of a tightrope walk as to what is best to do with liquidity. Of course, it makes sense to increase a company's profitability whenever possible. However, this requires liquid funds.

If one strives for profit maximization, a high liquidity risk is inevitable. The middle ground seems to be the solution, even if it is often very well hidden and not clearly recognizable. As you can see, juggling liquidity and profitability is inevitable.

Nowadays, the overall focus should be on liquidity. But banks are now paying much more attention than they were before the start of the financial crisis in 2007.

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