Over the years, liquidity is recognized as the pre-requisite for the survival of the business and managers of the companies take active participation in the management of liquidity. They realize that adequacy of liquidity in the company determines the financial performance of the company. In light of this, the present study analyses the liquidity position of FMCG companies in India and its impact on the financial performance of the companies for the period 2001-02 to 2016-17.It has been revealed through analysis that the selected FMCG companies in India maintained liquidity level below the standard ratio of 2:1. On the other hand, large disparity has been found in the companies’ financial performance ratios and majority of the companies have ROA and ROCE below the industry average. The study showed that financial performance of the companies are significantly affected liquidity position measures and important among these are debtor turnover ratio and cash conversion cycle. Thus, the study concludes that the companies must work upon reduction of cash conversion cycle in order to improve profit margins. 
 
KEYWORDS:  Liquidity, Performance, FMCG, India, Cash Conversion Cycle.

Introduction Liquidity is the speed with which the companies convert their business activities into cash. Cash being the most liquid form of companies’ assets, are used to pay the upcoming financial obligations. Other than cash, other liquid assets include short-term investments, account receivables and inventories as they can be easily converted into cash when need arises and are jointly known as current assets. In the words of Chakraborty (2004), “liquidity is an attribute that signifies the capacity to meet financial obligation as and when required”. Since 1930s, the managers of big and small corporations realized that managing the liquidity is equally important as the other objectives of the company. An active participation of managers in liquidity management was initiated since then. But, what actually liquidity management signifies? Liquidity management is a day-to-day activity performed by companies assuring that they carry adequate liquidity with themselves. As too low or too high liquidity hamper either of the two objectives of the companies, i.e. 

• Minimization of Risks: An uninterrupted business operation strives for a smooth flow of cash within the organization. This signifies that the company must have adequate working capital with itself to perform day-to-day activities which involves purchase of raw materials, paying for petty expenses, paying salary to employees etc. Inadequacy of funds to fulfill these financial obligations may lead to dissatisfaction among stakeholders. Thus, jeopardizing company with situation of bankruptcy, bad reputation, loss of creditor’s confidence or may be leading to high cost borrowings and thereby, creating a vicious circle of risks. The companies therefore, need to have adequate liquidity to meets its debt obligations and run the business operation with minimal risk.