An evaluation of corporate liquidity position of small and medium enterprises

Small to Medium Enterprises (SMEs) comprise the largest proportion of businesses in the Malaysian economy and offer the greatest potential for job creation. The conventional image of the small business owner is that of a highly independent individual taking risks and enduring challenges with limited assistance. Thus, the survival of these SMEs is vital to stimulate healthy business and maintain economic stability. Based on the combined interest in firm size and financial performance, alongside measurements of corporate liquidity, this study examines the relationship between earnings, cash flow, and corporate liquidity in Malaysian SMEs. The findings imply that both earnings and cash flow can be used to provide corporate liquidity information in small and medium businesses according to dynamic measurements of corporate liquidity. However, the static measures represented by the current ratio and quick ratio did not show any significant relationship with corporate liquidity. Consequently, corporate liquidity measurements may vary across sectors with regard to firm size. This study on Malaysian small and medium-scale companies paves the way to enhance governance in the management of corporate liquidity within the Malaysian business scenario