Question

When it comes to liquidity, should managers place a higher priority on improving liquidity as compared to emphasizing profitability?

Answer 1

Liquidity and Profitability both are very important aspect of business.It just depends upon business and Circumstances. For example: Business is earning huge profits but its cash tied up in hard assets and accounts receivables and it doesn't have money to pay to the employees,in this case liquidity is more important because it keeps the business running and maintaining the profits. Another instance where profit is more important than cash,if the business is not earning enough profit than liquidity will eventually have declining effect. The business has increased its revenue and cash flow but if its trapped in huge amount of business debt then the business does not make profit.