THE ROLE OF CURRENT RATIO IN DETERMINING PROFITABILITY: EVIDENCE FROM QUOTED FOOD MANUFACTURING COMPANIES IN NIGERIA

Abstract

This study examined how liquidity influenced profitability in quoted food manufacturing companies in Nigeria, drawing on the liquidity–profitability trade-off framework. Panel data from nine firms listed on the Nigerian Exchange Group covering the period 2013–2023 were analysed using descriptive statistics, pooled ordinary least squares, fixed- and random-effects models, and the Hausman test. Profitability was proxied by return on assets and net profit margin, while liquidity was measured using the current ratio. The results indicated that liquidity did not have a statistically significant effect on profitability when measured by return on assets (p = 0.9460) or net profit margin (p = 0.2208). Although the regression models were statistically significant (F-statistic, p = 0.0007 for ROA; p = 0.0000 for NPM) with strong explanatory power (R² = 0.2683 for ROA; R² = 0.9240, Adjusted R² = 0.9163 for NPM), the Hausman test supported the random-effects specification. Overall, the study concluded that liquidity did not significantly determine profitability in the sector, indicating that other firm-specific factors were more influential.