| Title : | Relationship between liquidity and profitability in Nepalese insurance companies | | Material Type: | printed text | | Authors: | Pande, Gyani, Author | | Publication Date: | 2019 | | Pagination: | `85p. | | Size: | GRP/Thesis | | Languages : | English | | Abstract: | Executive summary
Financial sector is the backbone of economy of a country. It works as a facilitator for achieving sustained economic growth through providing efficient monetary intermediation. A strong financial system promotes investment by financing productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. Several studies (McKinnon, 1973; Levine, 1997) have reported that the efficacy of a financial system to reduce information and transaction costs plays an important role in determining the rate of savings, investment decisions, technological innovations and hence the rate of economic growth.
Insurance companies provide unique financial services to the growth and development of every economy. Such specialized financial services range from the underwriting of risks inherent in economic entities and the mobilization of large amount of funds through premiums for long term investments. The risk absorption role of insurers promotes financial stability in the financial markets and provides a sense of peace to economic entities. The insurance companies’ ability to cover risk in the economy hinges on their capacity to create profit or value for their shareholders. A well developed and evolved insurance industry is a boon for economic development as it provides long- term funds for development (Charumathi, 2012, and Agiobenebo and Ezirim, 2002).
Liquidity plays a significant role in the successful functioning of a business firm. A firm should ensure that it does not suffer from shortage or excess liquidity to meet its short term compulsions. A study of liquidity is of a major importance to both the internal and the external analysts because of its close relationship with day to day operations of a business (Bhunia,2012). Liquidity is the ability of financial organization to change their assets into cash in a shortest possible time. Liquidity refers to ability of a financial organization to raise certain amount of funds at a certain cost with in certain period of time to discharge obligations (Andabai and Bingilar,2015)
The study reveals that average return on assets shows that the average return on assets is highest for HGI has highest average return on assets (0.83 percent) and lowest for GICL (0.03 percent). The average earnings per share is highest for NLIC (56.40 percent) and lowest for GICL (3.34 percent).It has been found that average earnings per share have been in slightly increasing trend for NLIC has highest average earning per share (56.40 percent) and lowest for GICL (3.34 percent).The average equity to total assets is highest for NILC (6.02 percent) and lowest for UIC (0.43 percent).The average leverage is highest for SHICL (5.38 percent) and lowest for the NALIC (0.11 percent).The average firm size has the highest for NALIC (3500.35 Million) and lowest for the SLICL (394.91 Million).The average Liquidity ratio is highest for LIC (35.74 percent) and lowest for SHICL (2.01 percent). The average assets tangibility is highest for assets tangibility (29.54 percent) and lowest for the GICL (1.99 percent). Loss ratio is highest at 1.00 percent and lowest in the year 0.20 percent.
The correlation analysis reveals that equity to total asset, leverage; assets tangibility and loss ratio are positively correlated with return on assets. However, firm size and Liquidity ratio are negatively correlated with return on assets. The correlation result also shows firm size, leverage, and loss ratios are positively correlated with earning per share. However, equity to total assets, Liquidity ratio and assets tangibility are negatively correlated with earning per shares.
The regression analysis shows that equity to total assets and leverage have positive and significant impact on return on assets indicating that higher the equity to total assets and leverage, higher will be the return on assets. Likewise, assets tangibility and loss ratio have positive impact on return on assets indicating that higher the assets tangibility and loss ratio, higher will be the return on assets. The firm size and Liquidity ratio have negative impact on return on assets which indicates that higher the firm size and Liquidity ratio, lower will be return on assets. The firm size and loss ratio have positive and significant impact on earnings per share which indicated that higher the firm size and loss ratio, higher would be the earnings per share. Similarly, leverage has positive impact on earnings per share indicating that larger the leverage, higher would be the earning per shares. The equity to total assets, and assets tangibility have negative impact on earnings per share indicating higher the equity to total assets and assets tangibility, lower would be the earnings per share.
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Relationship between liquidity and profitability in Nepalese insurance companies [printed text] / Pande, Gyani, Author . - 2019 . - `85p. ; GRP/Thesis. Languages : English | Abstract: | Executive summary
Financial sector is the backbone of economy of a country. It works as a facilitator for achieving sustained economic growth through providing efficient monetary intermediation. A strong financial system promotes investment by financing productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. Several studies (McKinnon, 1973; Levine, 1997) have reported that the efficacy of a financial system to reduce information and transaction costs plays an important role in determining the rate of savings, investment decisions, technological innovations and hence the rate of economic growth.
Insurance companies provide unique financial services to the growth and development of every economy. Such specialized financial services range from the underwriting of risks inherent in economic entities and the mobilization of large amount of funds through premiums for long term investments. The risk absorption role of insurers promotes financial stability in the financial markets and provides a sense of peace to economic entities. The insurance companies’ ability to cover risk in the economy hinges on their capacity to create profit or value for their shareholders. A well developed and evolved insurance industry is a boon for economic development as it provides long- term funds for development (Charumathi, 2012, and Agiobenebo and Ezirim, 2002).
Liquidity plays a significant role in the successful functioning of a business firm. A firm should ensure that it does not suffer from shortage or excess liquidity to meet its short term compulsions. A study of liquidity is of a major importance to both the internal and the external analysts because of its close relationship with day to day operations of a business (Bhunia,2012). Liquidity is the ability of financial organization to change their assets into cash in a shortest possible time. Liquidity refers to ability of a financial organization to raise certain amount of funds at a certain cost with in certain period of time to discharge obligations (Andabai and Bingilar,2015)
The study reveals that average return on assets shows that the average return on assets is highest for HGI has highest average return on assets (0.83 percent) and lowest for GICL (0.03 percent). The average earnings per share is highest for NLIC (56.40 percent) and lowest for GICL (3.34 percent).It has been found that average earnings per share have been in slightly increasing trend for NLIC has highest average earning per share (56.40 percent) and lowest for GICL (3.34 percent).The average equity to total assets is highest for NILC (6.02 percent) and lowest for UIC (0.43 percent).The average leverage is highest for SHICL (5.38 percent) and lowest for the NALIC (0.11 percent).The average firm size has the highest for NALIC (3500.35 Million) and lowest for the SLICL (394.91 Million).The average Liquidity ratio is highest for LIC (35.74 percent) and lowest for SHICL (2.01 percent). The average assets tangibility is highest for assets tangibility (29.54 percent) and lowest for the GICL (1.99 percent). Loss ratio is highest at 1.00 percent and lowest in the year 0.20 percent.
The correlation analysis reveals that equity to total asset, leverage; assets tangibility and loss ratio are positively correlated with return on assets. However, firm size and Liquidity ratio are negatively correlated with return on assets. The correlation result also shows firm size, leverage, and loss ratios are positively correlated with earning per share. However, equity to total assets, Liquidity ratio and assets tangibility are negatively correlated with earning per shares.
The regression analysis shows that equity to total assets and leverage have positive and significant impact on return on assets indicating that higher the equity to total assets and leverage, higher will be the return on assets. Likewise, assets tangibility and loss ratio have positive impact on return on assets indicating that higher the assets tangibility and loss ratio, higher will be the return on assets. The firm size and Liquidity ratio have negative impact on return on assets which indicates that higher the firm size and Liquidity ratio, lower will be return on assets. The firm size and loss ratio have positive and significant impact on earnings per share which indicated that higher the firm size and loss ratio, higher would be the earnings per share. Similarly, leverage has positive impact on earnings per share indicating that larger the leverage, higher would be the earning per shares. The equity to total assets, and assets tangibility have negative impact on earnings per share indicating higher the equity to total assets and assets tangibility, lower would be the earnings per share.
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