The IUP Journal of Accounting Research and Audit Practices:
The Impact of Profitability, Leverage, Efficiency and Liquidity on Return on Equity: The Case of Indian IT Companies

Article Details
Pub. Date : Apr, 2020
Product Name : The IUP Journal of Accounting Research and Audit Practices
Product Type : Article
Product Code : IJARAP20420
Author Name : Faizan Ulhaqq Ansari
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 12



The present study aims to distinguish the relationship between profitability, leverage, efficiency, liquidity and Return on Equity (ROE) and examine the effects of these factors on ROE of Indian IT companies listed on National Stock Exchange. By considering the data of nine Indian IT companies from 2004-05 to 2018-19, this study found that each independent variable plays a significant role and contributes to derive variation in the ROE. The ROE of IT companies mostly relies on profitability of a firm as profitability is positively related and highly impactive, and contributes to derive a large amount of variation in the ROE. Further, leverage and efficiency of a firm are positively and significantly related to ROE, while on the contrary, liquidity has significant negative relationship with ROE. Overall, profitability, leverage, efficiency and liquidity play a significant role and contribute to variation in ROE of a firm.


Financial management is one of the crucial areas of management and it is the key factor behind the success of any business. Inefficient financial management can lead business enterprises to serious problems; profitability of the company can be adversely affected by wrong financial decisions. Moreover, relying excessively on equity, taking additional debt, making investments in assets, and maintaining high liquidity can also affect profitability significantly.


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