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working capital management

Sanchitt (Student CA CPT ) (161 Points)

22 April 2016

if there is high liquidity then why low return on total assets plz explain?

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Return on total assets is profitability ratio.The objective is to fnd out how efficiently the total assets have been used by management.Profitability and liquidity are closely related.If firm make excessive investment in current assets ,it results in high liquidity but with low profitability because excessive investment in current assets remains idle and hence earn nothing.This is important task of finance manager to make a trade off between risk and return or liquidity or profitability.