LIQUIDITY-PROFITABILITY TRADE-OFF: EVIDENCE FROM SAUDI ARABIAN FOOD AND BEVERAGES PRODUCTION COMPANIES

Rym Bounouala

Abstract


The growth and survival of firms depend on liquidity and profitability, which are often in conflict due to the competing allocation of financial resources. This study aims to investigate the liquidity-profitability trade-off in a sample of 21 companies operating in the food and beverage sector and listed on the Saudi Stock Exchange, for the year 2024. Using Data Envelopment Analysis (DEA), the study evaluates the efficiency of the sample firms in managing both liquidity and profitability based on two inputs (total assets, operating expenses) and two outputs (operating cash flow, net profit). Principal Component Analysis (PCA) is then applied; the findings indicate a heterogeneous pattern across firms, with a greater share exhibiting a liquidity-oriented profile compared to those driven by profitability. Only a limited number of firms demonstrate a balanced position between the two dimensions, while a substantial proportion performs weakly in both liquidity and profitability. This pattern reflects a lack of uniform financial behavior among firms and implies that the liquidity–profitability relationship is not systematic and cannot be adequately explained by a simple trade-off mechanism.

Keywords


liquidity; profitability; trade-off; DEA; PCA;

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References


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DOI: http://dx.doi.org/10.12709/mest.14.14.02.08

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