The relationship between profitability and financial liquidity among the importers of best-selling brands of new cars in poland

Illustr. 1

Fig. 1

Fig. 2

Ratio analysis of financial statements of the studied entities

Ratio	Company 1					Company 2					Company 3					Company 4					Company 5					Company 6
	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019
operating cash flow/sales ratio	0.03	0.03	0.01	0.01	0.01	0.03	0.03	0.03	0.03	0.03	0.02	0.02	−0.01	0	0	0.01	0.01	0.02	0.01	0.01	0.01	0.01	0.11	0.05	0.05	−0.02	−0.02	0.06	0.03	0.03
operating cash flow/current assets ratio	5.85	5.85	0.06	0.29	0.29	0.29	0.29	0.27	0.21	0.21	0.16	0.16	−0.03	0.03	0.03	5.79	5.79	0.1	0.3	0.3	0.03	0.03	0.37	0.18	0.18	−0.15	−0.15	0.25	0.1	0.1
operating cash flow/current liabilities ratio	0.29	0.29	0.09	0.14	0.14	0.66	0.66	0.51	0.35	0.35	0.19	0.19	−0.04	0.03	0.03	0.04	0.04	0.06	0.04	0.04	0.05	0.05	0.58	0.42	0.42	−0.2	−0.2	0.31	0.15	0.15
current liquidity ratio	1.87	1.87	1.68	1.74	1.74	2.32	2.32	1.91	1.71	1.71	1.23	1.23	1.45	1.67	1.67	0.61	0.61	1.51	1.53	1.53	1.7	1.7	1.59	2.37	2.37	1.31	1.31	1.26	1.46	1.46
quick ratio	1.42	1.42	1.18	1.27	1.27	1.73	1.73	1.61	1.39	1.39	0.3	0.3	0.27	0.1	0.1	1.21	1.21	1.21	1.21	1.21	1.18	1.18	1.22	1.43	1.43	1	1	0.9	1.07	1.07
immediate liquidity ratio	0.02	0.02	0.01	0.01	0.01	0.2	0.2	0.01	0.1	0.1	0.2	0.2	0.13	0.93	0.93	0.47	0.47	0.41	0.47	0.47	0.73	0.73	0.2	0.53	0.53	0.84	0.84	0.75	0.53	0.53
inventory turnover cycle	10	10	15	13	13	9	9	4	7	7	8	8	7	6	6	21	21	25	31	31	15	15	18	12	12	4	4	5	6	6
receivables turnover cycle	14	14	18	20	20	4	4	9	7	7	5	5	3	3	3	34	34	42	34	34	24	24	13	16	16	6	6	10	11	11
liabilities turnover cycle	6	6	5	8	8	6	6	9	6	6	5	5	5	4	4	15	15	18	20	20	12	12	15	8	8	3	3	6	5	5
cash conversion cycle	18	18	27	25	25	7	7	4	8	8	8	8	5	5	5	40	40	49	45	45	27	27	16	20	20	7	7	9	12	12
overall financial condition ratio	2.56	2.56	2.47	2.47	2.47	0.88	0.88	0.94	1.01	1.01	2.58	2.58	1.64	1.78	1.78	0.13	0.13	0.15	0.13	0.13	3.06	3.06	4.9	5.19	5.19	0.44	0.44	0.52	0.64	0.64
ROA	4.32%	4.32%	4.39%	4.09%	4.09%	5.85%	5.85%	6.06%	5.23%	5.23%	3.75%	3.75%	8.89%	6.24%	6.24%	3.95%	3.95%	3.76%	3.94%	3.94%	1.33%	1.33%	3.91%	8.43%	8.43%	0.37%	0.37%	1.07%	0.75%	0.75%
ROS	0.86%	0.86%	0.87%	0.79%	0.79%	0.77%	0.77%	0.96%	0.77%	0.77%	0.58%	0.58%	1.42%	0.97%	0.97%	1.56%	1.56%	1.68%	1.56%	1.56%	0.35%	0.35%	1.28%	2.37%	2.37%	0.05%	0.05%	0.26%	0.20%	0.20%
ROE	22.04%	22.04%	25.81%	25.81%	25.81%	84.67%	84.67%	88.39%	62.57%	62.57%	18.33%	18.33%	33.89%	22.45%	22.45%	32.85%	32.85%	32.57%	32.85%	32.85%	10.64	10.64	24.32%	44.95%	44.95%	8.96%	8.96%	32.38%	22.56%	22.56%

Correlation matrix (r-Pearson correlation coefficient) between the study variables and the liquidity and profitability of the companies analysed

	Operating cash flow/sales ratio	Operating cash flow/current assets ratio	Operating cash flow/current liabilities ratio	Current liquidity ratio	Quick ratio	Immediate liquidity ratio	ROA	ROS	ROE
Operating cash flow/sales ratio	1.000	0.023	0.773***	0.307*	0.352*	−0.272	0.155	0.254	0.290
Operating cash flow/current assets ratio		1.000	−0.003	−0.332*	0.222	−0.221	0.017	0.199	−0.080
Operating cash flow/current liabilities ratio			1.000	0.620***	0.532***	−0.491***	0.429**	0.211	0.744***
Current liquidity ratio				1.000	0.428**	−0.225	0.489***	0.199	0.485***
Quick ratio					1.000	−0.394**	0.005	0.165	0.537***
Immediate liquidity ratio						1.000	−0.348	−0.130	−0.424**
ROA							1.000	0.735***	0.539***
ROS								1.000	0.268
ROE									1.000

Breakdown of financial statements_

Item	Characteristics
Scope	Annual separate/annual total/annual consolidated
Obligatory or not	Obligatory/optional
Obligation to publish	Must be published/does not have to be published
Frequency	Systematically/sporadically
Degree of generality	Synthetic/analytical
Reporting period	Ex post (actual return)/ex ante (expected return)
Recipients	External/internal

Items of the cash flow statement in business operations

Direct method

Indirect method

Cash flows from operating activities Receivables Sales Other proceeds from operation activities Expenses Supplies and services Net salaries Social and health insurance and other benefits Taxes and public law charges Other operating expenses Net cash flows from operating activities (I–II)

Cash flows from operating activities Result (net profit/loss) Adjustments total Depreciation Profits (losses) due to exchange rate differences Interest and shares in dividends Profit (loss) on investment Change in reserves Change in inventory Change in receivables Change in short-term liabilities, except for loans and credits Change in the status of accruals Other adjustments Net cash flows from operating activities (I–II)

Companies studied in empirical research

Car brand	Registered name of the company
Skoda, Volkswagen, Audi	Volkswagen Group Polska
Renault, Dacia	Renault Poland
Toyota	Toyota Motor Poland Company Limited
Kia	Kia Motors Polska
Mercedes	Mercedes-Benz Poland
BMW	BMW Vertriebs GMBH Polish branch
Ford	Ford Polska

Functions of financial ratios

Group of ratios	Purposes
Financial liquidity	Assessment of the company's ability to settle liabilities (mainly short-term perspective)
Solvency	Assessment of the risk of the company's possible bankruptcy (short-term and long-term perspective)
Management efficiency	Assessment of the opportunities and threats in the area of effective management (mainly current operations and outlook for the future)
Profitability	Assessment of the company's profitability (the prospect of current benefits)

Financial analysis ratios selected for empirical research

Item	Calculation formula
Operating cash flow to sales ratio	operating cash flownet sales revenue{{{\rm{operating}}\,{\rm{cash}}\,{\rm{flow}}} \over {{\rm{net}}\,{\rm{sales}}\,{\rm{revenue}}}}
Operating cash flow to current assets ratio	operating cash flowaverage current assets{{{\rm{operating}}\,{\rm{cash}}\,{\rm{flow}}} \over {{\rm{average}}\,{\rm{current}}\,{\rm{assets}}}}
Operating cash flow to current liabilities ratio	operating cash flowtotal liabilities{{{\rm{operating}}\,{\rm{cash}}\,{\rm{flow}}} \over {{\rm{total}}\,{\rm{liabilities}}}}
3rd degree (current) liquidity ratio	current assetsshort-term liabilities{{{\rm{current}}\,{\rm{assets}}} \over {{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}}}
2nd degree (quick) liquidity ratio	current assets-inventoryshort-term liabilities{{{\rm{current}}\,{\rm{assets}\text{-}\rm{inventory}}} \over {{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}}}
1st degree (immediate) liquidity ratio	cash availableshort-term liabilities{{{\rm{cash}}\,{\rm{available}}} \over {{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}}}
Inventory turnover cycle	average inventorycosts of goods sold×number of days{{{\rm{average}}\,{\rm{inventory}}} \over {{\rm{costs\, of}}\,{\rm{goods}}\, {\rm{sold}}}} \times {\rm{number}}\,{\rm{of}}\,{\rm{days}}
Receivables turnover cycle	short-term liabilitiesnet sales revenue×number of days{{{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}} \over {{\rm{net}}\, {\rm{sales}}\, {\rm{revenue}}}} \times {\rm{number}}\,{\rm{of}}\,{\rm{days}}
Short-term liabilities turnover cycle	average short-term liabilitiescost of goods sold×number of days{{{\rm{average}}\,{\rm{short}\text{-}\rm{term}}\, {\rm{liabilities}}} \over {{\rm{cost}}\, {\rm{of}}\,{\rm{goods}}\, {\rm{sold}}}} \times {\rm{number}}\,{\rm{of}}\,{\rm{days}}
Cash conversion cycle	turnover cycle = (inventories + receivables - short-term liabilities)
Working capital ratio	current assets - short-term liabilities
overall financial condition ratio	equity/fixed assetstotal liabilities/current assets{{{\rm{equity/fixed}}\, {\rm{assets}}} \over {{\rm{total}}\, {\rm{liabilities/current}}\, {\rm{assets}}}}
ROA (return on assets)	net returntotal assets×100%{{{\rm{net}}\, {\rm {return}}} \over {{\rm{total}}\, {\rm {assets}}}} \times {\rm{100\% }}
ROS (return on sales)	net returnsales revenues×100%{{{\rm{net}}\, {\rm {return}}} \over {{\rm{sales}}\, {\rm {revenues}}}} \times {\rm{100\% }}
ROE (return on equity)	net returnequity×100%{{{\rm{net}}\, {\rm {return}}} \over {{\rm{equity}}}} \times {\rm{100\% }}

An attempt at a synthetic assessment of the studied group of entities

Item	The most commonly occurring
The most favourable situation	Company 1
The most stable situation	Company 2
The least favourable situation	Company 3 and 6