Title: "Liquidity-Profitability Trade-off in the Indian IT Sector: An Empirical and Financial Management Perspective"
Authors: Kirti B. Kalathiya,
Volume: 10
Issue: 1
Pages: 103-106
Publication Date: 2026/01/28
Abstract:
The Indian Information Technology (IT) sector plays a pivotal role in the country's economic growth, contributing significantly to employment generation, export earnings, and digital transformation. In this context, effective financial management becomes essential, particularly in balancing liquidity and profitability, two critical yet often conflicting financial objectives. This study empirically examines the liquidity-profitability trade-off in selected Indian IT companies to understand how short-term financial stability influences long-term earning capacity.The research is based on secondary data collected from the published annual reports of selected IT firms over a defined study period. Key liquidity indicators such as the current ratio, quick ratio, and cash ratio, along with profitability measures including return on assets, return on equity, and net profit margin, are employed for analysis. Statistical tools such as ratio analysis, correlation analysis, and regression techniques are used to evaluate the nature and strength of the relationship between liquidity and profitability.The findings reveal a nuanced relationship between liquidity and profitability in the Indian IT sector. While adequate liquidity supports operational continuity and risk management, excessive liquidity is found to have a marginally adverse effect on profitability, indicating inefficient utilization of resources. Conversely, firms with optimized liquidity positions tend to demonstrate stronger and more consistent profitability performance. The study highlights the importance of strategic financial planning in achieving an optimal balance between liquidity and profitability.The insights derived from this research are valuable for financial managers, investors, and policymakers, as they underscore the need for efficient working capital management to ensure sustainable growth and financial resilience in the Indian IT sector.