Cash Conversion Cycle

The management of liquidity and cash conversion cycle are considered to be very important issues while making the financial decisions and they usually have an effect on the profitability of the firm. The purpose of this paper is to investigate the relationship that cash conversion cycle and liquidity have with profitability in case of a manufacturing company Dabur Nepal Private Limited (DNPL). This is a case study of DNPL. The audited financial statements of DNPL covering a period of 10 years from 2006-2015 were used for data collection. So, this study is based on secondary data. Profitability has been measured in terms of Return on Assets (ROA), Return on Equity (ROE), and Earnings per Share (EPS). The components of cash conversion cycle (CCC) that have been used are Inventory Conversion Period (ICP), Days Sales Outstanding (DSO) and Payable Deferral Period (PDP). Current Ratio (CR) and Quick ratio (QR) have been used as liquidity ratios. The correlation analysis and regression analysis have been used to find the relation that liquidity ratios, CCC and its components have with profitability. All the findings were tested at 0.10 level of significance. The study results confirm that there is statistically significant relationship of CCC and its components with profitability but there is not statistically significant relation of liquidity and profitability in case of DNPL.

Working capital management is the discipline of management which is inevitable in all walks of economic life whether in a household or in an enterprise, in the public domain or in private domain,profit oriented or not .The efficient working capital management is most crucial factor in maintaining survival,liquidity,solvency and profitability of any business organization. Moreover, an optimal working capital management positively contributes to the firm's value. Theprofitability and the efficiency of every sector in the nation have direct bearing on the prosperity of economy which can be primarily achieved through efficient working capital management practices. It helps in designing a framework to smoothen the financial constraints of business so as to make effective use of its resources.Keeping in mind the significance of working capital management an attempt has been made to examine its impact on the profitability of Indian automobile industry. The Indian automobile industry is...

Working capital management holds an important place among financial management decisions. Firms' keeping working continuously in the long term depends on investments on working capital. The optimal level of working capital for a firm can be provided when there is a balance between profitability and liquidity. The aim of this study is to examine the effect of cash conversion cycle which is used to evaluate the effectiveness of working capital management on profitability of firms. With this aim, data set between 2009 and 2013 from 19 firms in Gümüşhane city in Turkey working in the fields of fruit leather and churchkhela production have been used. According to the results of panel data analysis results, there is a positive effect of cash conversion cycle on profitability of firms.

This study examines the working capital management of various sectors and various companies from India during the 10 years study period from year 2010 to 2020. Many of the studies advocate a linear relationship between the working capital management and profitability, but in this study we investigate the existence of various possible relationships between various sectors and different companies in that particular sector. The distribution of working capital measure i.e. cash conversion cycle, debtors collection period, creditors payments period and inventory holding period were analyzed across sectors and companies and other factors affecting profitability like leverage, sales growth, frim size, current ratio, GDP growth rate have also been taken into consideration, as control variables.

This study examines the relationship between working capital management (WCM) and firm performance during and after the financial crisis of 2007-2008 in Nigeria. During the crisis, lending conditions were deeply affected, and financing operations became challenging for firms. Although research findings on the causes and effects of the crisis on the economy are known, what remains unknown is whether the financial crisis had a significant impact on WCM performance. This knowledge is essential for developing resilience to withstand a possible crisis in the future because vulnerability remains high as a result of the deepened integration of many economies. Thus, this study addresses this issue using a sample of 675 firm-year observations from listed firms on the Nigerian stock exchange for the period from 2007 to 2015. The differences between the two periods, the crisis period and then after the crisis period, is operationalised through two analyses. First, OLS regression analysis was c...

The primary objective of this research is to examine the relationship between cash conversion cycle (CCC) and net profit margin (NPM) of cement industry of Saudi Arabia. The study selected five companies out of 14 companies from Saudi Arabia's cement industry over the period from 2009 to 2019. The relationship between CCC and NPM was investigated using correlation and regression analysis. The analysis shows that the cash exchange period and the net profit margin have a negative association. As explained this study is based on cement industry hence its result cannot be generalised with other manufacturing companies however similar studies across the Saudi industries could be conducted to identify the presence of a relationship between CCC and NPM.

Berkurang atau bertambahnya modal sangat ditentukan oleh aktivitas perusahaan, apakah mendapatkan untung atau mendapatkan rugi. Modal kerja dalam suatu perusahaan tentu perlu penganggaran agar pengeluaran perusahaan tidak melewati batas modal yang dimiliki oleh perusahaan itu sendiri. Penelitian ini bertujuan untuk menguji dan mengamati seberapa besar pengaruh DIO (Days Inventory Outstanding), DPO (Days Payable Outstanding), DSO (Days Sales Outstanding) terhadap Return on Assets sebagai indikator profitabilitas pada perusahaan manufaktur sub-sektor makanan dan minuman yang terdaftar di Bursa Efek Indonesia periode 2013-2017. Teknik analisis yang digunakan adalah regresi linear berganda. Berdasarkan hasil uji hipotesis di temukan bahwa secara parsial (Days Inventory Outstanding) berpengaruh negative signifikan terhadap Return On Asset, DPO (Days Payable Outstanding) berpengaruh positif  signifikan terhadap Return On Asset, DSO (Days Sales Outstanding) berpengaruh negative signifikan terhadap Return On Asset.

Small Medium Enterprises became important industrial sector in spurring economic development within the world today. This research only targeted registered SMEs within the manufacturing sector in Eldoret town. Specific objectives of the study were: to investigate the influence of accounts receivable period on profitability of SMEs within the manufacturing sector, in Eldoret town, Uasin Gishu County; and to research the influence of money conversion cycle profitability of SMEs within the manufacturing sector, in Eldoret town, Uasin Gishu County. This study adopted descriptive research design. Target population of the research comprised of 656 firms. A sample size of 322 registered SMEs within the manufacturing sector in Eldoret town, Uasin Gishu County was sampled. The research utilized first data from the target research participants. Both descriptive and inferential statistics were adopted using Statistical Package for the Social Sciences (SPSS) computer package. The result of this research, it is hoped, will be beneficial to varied stakeholders, who include the govt., SMEs, lending institutions, researchers and scholars. The findings of this study show that there is positive and significant relationship between Accounts Receivables and profitability. Cash conversion cycle had a significant relationship with profitability.

The target of the exploration is to decide the impact working capital administration factors on firm profitability in the textile segment of Pakistan. The current empirical research study dependent on financial statement information of 58 companies from the textile sector of Pakistan for the years (2010-2016). The data for this purpose was collected from the annual reports of these companies available on their respective websites as well as from the state bank of Pakistan's annual publications. The result of regression shows that cash conversion cycle square (CCC2), account receivable period (ARP), firm size, the log of age (LNAGE) and leverage (LEVE) are negatively interrelated with profitability. Cash conversion cycle (CCC) account payable period (APP), firm Age and current ratio (C.A) are positively interrelated with profitability. The sample used in the research is limited to 58 firms due to the availability of data for these firms only. Future researchers can use a large sample size for replicating the current study. The findings of the current study are important for consideration for the policy makers and decision makers in the firms of the textile sector of Pakistan. By considering the significant factors of working capital management and their impact on a firm's profitability, the policymakers can take an effective decision regarding how to increase the profitability of firms in textile firms in Pakistan.

In this study, the impact of working capital management on the profitability of Oil and Gas firms in India has been examined. The study is conducted by analysing nine significant firms from the Oil and natural gas sector in the country. The selected sample represents a weightage of around 91 per cent of the Nifty Oil and Gas Index. The study makes use of purely secondary data which has been obtained from the audited annual reports of the companies studied. The various statistical methods applied in the study include descriptive analysis, Pearson’s correlation and multiple regression using panel data. The study used variables such as current ratio, debt ratio, cash conversion cycle, operating revenue growth and size of the firms (measured using total assets) as the components of WCM. The proxy variable for the profitability of the entities is ROA. The results of the study reveal that cash conversion cycle has a negative relation to profitability, although the coefficient is not too high. This means that the managers need to focus on reducing the CCC to increase profitability. It was also noted that there was a significant inverse relationship between profitability and debt ratio.

In this study, the impact of working capital management on the profitability of Oil and Gas firms in India has been examined. The study is conducted by analysing nine significant firms from the Oil and natural gas sector in the country. The selected sample represents a weightage of around 91 per cent of the Nifty Oil and Gas Index. The study makes use of purely secondary data which has been obtained from the audited annual reports of the companies studied. The various statistical methods applied in the study include descriptive analysis, Pearson’s correlation and multiple regression using panel data. The study used variables such as current ratio, debt ratio, cash conversion cycle, operating revenue growth and size of the firms (measured using total assets) as the components of WCM. The proxy variable for the profitability of the entities is ROA. The results of the study reveal that cash conversion cycle has a negative relation to profitability, although the coefficient is not too high. This means that the managers need to focus on reducing the CCC to increase profitability. It was also noted that there was a significant inverse relationship between profitability and debt ratio.

This study aims at examining the impact of corporate governance quality on cash conversion cycle (CCC) in
Jordan. Using OLS regression for a sample of all industrial companies listed on Amman Stock Exchange during
the period (2009-2013). The results revealed that CCC is affected negatively by corporate governance quality,
which provides an implication to industrial companies in Jordan to boost their compliance with corporate
governance code in order to improve their working capital management efficiency. Furthermore, the outcomes
showed a variation in corporate governance categories between sub-samples, which supports contingency theory
that rejects the approach of “one size fits all”. The findings provide implications for future studies to deal with
firm characteristics as context dependent rather than simply as control variables. The results also provide
implications for regulatory bodies in Jordan that highlight the importance of “comply or explain” approach to
some corporate governance rules embracing the “one size does not fit all” approach. This study fills a gap in the
existing literature by studying the quality of corporate governance and by using the context dependent approach.

The present research investigates the effects of cash conversion cycle on economic value added among companies listed on Tehran's stock exchange. The sample of study includes 118 companies. The multivariate-regression method has been used for analysis of research hypotheses. Results indicated that a reverse and statistically significant relationship exists between companies' cash conversion cycle and their economic value added. In other words, by reducing the length of cash conversion cycle within reasonable limits, companies are able to increase their economic value added.

This paper analyzes the relation between working capital management and profitability for small and medium-sized enterprises (SMEs) by controlling for unobservable heterogeneity and possible endogeneity. Unlike previous studies, we examine a non-linear relation between these two variables. Our results show that there is a non-monotonic (concave) relationship between working capital level and firm profitability, which indicates that SMEs have an optimal working capital level that maximizes their profitability. In addition, a robustness check of our results confirms that firms’ profitability decreases as they move away from their optimal level.

Managing liquidity and the cash conversion cycle play an important role in running a business successfully. Company officials must be confident that their organization does not suffer a shortage or a surplus of payment means and they must be ready to cover current liabilities when necessary. At the same time, the management’s aim is an increase in the company’s returns. The research covers the influence of the current liquidity ratio and cash conversion cycle on financial performance (as a return on net operating assets, RNOA) of Russian companies. A regression analysis of 720 Russian companies engaged in various economic activities for the period 2001 to 2012 was performed with Stata 12.0. The companies in the sample represent the following industries: telecommunications, transport, electric power industry, trade, metallurgy, mechanical engineering, chemical and petrochemical, oil and gas. The authors find an inverse relation between the Russian companies’ cash conversion cycle and...

Working Capital Management which includes managing of short-term assets and liabilities has a significant impact on firm's performance. The purpose of this study is to investigate the impact of working capital management on earnings per share (EPS) of the cement companies in Bangladesh. The authors used the secondary data collected from annual reports of the Dhaka Stock Exchange (DSE) listed cement companies over the period of 2009-2015. The study used cash conversion cycle as a proxy for Working Capital Management and used panel data regression technique. The empirical evidenceshows that there is an insignificant negative impact of cash conversion cycle on earnings per share of the cement companies. Size (natural log of assets) and leverage (TD/TA) of the sample firms during the period also have an insignificant negative impact on EPS.

Working capital management is the discipline of management which is inevitable in all walks of economic life whether in a household or in an enterprise, in the public domain or in private domain,profit oriented or not .The efficient working capital management is most crucial factor in maintaining survival,liquidity,solvency and profitability of any business organization. Moreover, an optimal working capital management positively contributes to the firm's value. Theprofitability and the efficiency of every sector in the nation have direct bearing on the prosperity of economy which can be primarily achieved through efficient working capital management practices. It helps in designing a framework to smoothen the financial constraints of business so as to make effective use of its resources.Keeping in mind the significance of working capital management an attempt has been made to examine its impact on the profitability of Indian automobile industry. The Indian automobile industry is...

Abstract Efficient working capital management is becoming important for restaurant firms coping with weak financial conditions and increased economic uncertainty. This study investigates the impact of restaurant firms’ working capital on their profitability. We further examine the effects of firms’ cash levels on the relationship between working capital and profitability. The findings ascertain a strong inverted U-shape relationship between working capital and a firm's profitability, which indicates the existence of an optimal working capital level for restaurant firms. This study also reveals that a firm's cash level is an important factor for efficient working capital management. The results suggest that interactive effects exist among working capital, cash levels, and profitability. Thus, restaurant managers should consider these different roles and impacts when developing an efficient working capital management strategy. Detailed results and implications are presented in the main body of this paper.

This study empirically examines the impact of the bargaining mechanism of a focal firm’s power on additional costs incurred by its supply chain partners. The results show that a focal firm with greater power within an industry exerts its bargaining power over its suppliers and buyers to improve liquidity through increasing account payable days and reducing account receivable and inventory days. The upward pressure of bargaining power on a focal firm’s account payable days has become more pronounced in the presence of financial crisis. Managerial implications of the findings are discussed.

This study empirically examines how resource dependence may be bargained away by supply chain finance (SCF) costs incurred to upstream suppliers and downstream buyers through cash-conversion-cycles. We found that a focal firm may get compensated for its resource contribution with an extra share of the financial gain by using the superior bargaining position over its vertical supply chain partners. Nevertheless, the focal firm may proactively restrain its use of bargaining power when the need for cooperative relationship with its supply chain partners prevails. Managerial and research implications for the introduction of power theory and relation theory to the SCF studies are discussed.

The aim of this research is to find out the relationship between the performance of the firm (in terms of profitability) and working capital management. Working capital management is critical in financial decision making as it not only affects liquidity but profitability also. In terms of financial management the key areas are that how much to be invested in short terms assets and what can be the source of fund. Efficient Working capital is key to the success for companies. Sufficient liquid assets are required to maintain day to day operations in working. There are plenty of examples where successful businesses had to see failure because of lack of proper management of working capital.

Cash has always being disregarded in financial decision making since it involves investment and financing in short term period. However, it is an important component in firm financial management decision. This study therefore investigates empirically the relationship between cash management and profitability in listed manufacturing companies in Nigeria. Cash conversion cycle is used as the measure for cash management as

This study examines the relationship between working capital management, profitability, firm size and industry type for firms in Japan. The study sample consists of 2123 Japanese non-financial firms listed at the Tokyo Stock Exchange for the period 1990-2004. We observe that the cash conversion cycle and return on investment relationships are commonly significant and negative, suggesting that the shortening of the cash conversion cycle enhances the profitability of Japanese firms.

The ultimate goal of firms is to make a profit and to achieve this ultimate goal, firms execute various functions. Finance is one of the basic functions of firms and firms need financial instruments such as cash reserve and outsource to carry out their activities. Cash management within the finance function is an important issue that needs to be carefully considered, especially in the short and medium term financial planning stage. Presently, the high competition among firms forces companies to manage their cash in the most effective way. The conceptual studies on the subject are quite old and date back to Keynes. According to Keynes, firms demand cash for transaction, prudence and speculation. As a result of analysis, it has been determined that cash conversion cycle has an impact on return on assets (ROA) and return on equity (ROE). There is a statistically significant and negative relationship between cash conversion cycle (CCC) return on assets (ROA) and return on equity (ROE). In addition, there is a positive relationship between return on assets (ROA) and firm size while there is a negative and statistically significant relationship between debt ratio (DEBT) and return on assets (ROA).

Bu çalışmada Borsa İstanbul’da yer alan 7 imalat sanayi sektörünün 1990-2016 dönemini kapsayan nakde dönüşüm süresi serilerine yatay kesit bağımlılığını dikkate alan birim kök testlerinden CADF uygulanmıştır. Çalışma sonucunda oluşturulan sabitli modelde tekstil, tekstil-konfeksiyon-deri sektörü dışında diğer sektörlerin durağan olmadığı görülmektedir. Ayrıca, sabitli ve trendli modelde, kâğıt-kâğıt ürünleri ile tekstil-konfeksiyon-deri ürünleri dışında diğer sektörlerin de durağan olmadığı tespit edilmiştir. Panelin genelini değerlendirildiği CIPS istatistiğine göre ise hem sabitli hem de sabitli ve trendli modeller için nakde dönüşüm süresi serisinin durağan olmadığı görülmektedir. Buna göre; sektörel veya makroekonomik kaynaklı dalgalanmaların nakde dönüşüm süresi üzerindeki etkisinin hemen kaybolmadığını, diğer bir ifadeyle bu dalgalanmaların nakde dönüşüm süresi üzerinde kalıcı etkilere sahip olduğunu söylemek mümkündür.
Anahtar Kelimeler: Nakde Dönüşüm Süresi, Panel Birim Kök Testleri, Yatay Kesit Bağımlılığı.

In this study, one popular unit root test where the standard DF regressions are augmented with cross-sectional averages of lagged levels and first differences of the individual series, briefly named as CADF test (Cross-sectionally Augmented Dickey-Fuller test), is performed on cash conversion cycle series of totally 7 BIST listed manufacturing industries in the period of 1990-2016. Results indicate that in the model with constant, all industries except textile and textile-apparel-leather are not stationary. Besides, in the model with constant and trend, all industries except paper raw materials and paper products, and textile-apparel-leather industries are not stationary, as well. According to CIPS statistics, in both models with constant, and with constant and trend, cash conversion cycle series are not stationary. In the light of these empirical findings, it is possible to mention that industrial or macroeconomic fluctuations have permanent effects on cash conversion cycles of different industries.
Keywords: Cash Conversion Cycle, Panel Unit Root Test, Cross-Sectional Dependence.

The examined ex-post operating performance showed that the 2008‒2009 financial crisis hit Japanese firms through trade and liquidity channels (Claessens et al. 2012, Hosono et al. 2012), while the Great East Japan Earthquake affected supply chain networks (MacKenzie et al. 2012). Considering working capital management as a vital issue in explaining liquidity of firms, by employing a fixed effect LSDV model, the author analyzed the effects of components of working capital management like cash conversion cycle (CCC) on profitability of firms. The results revealed a significant negative relationship between firmsʼ performance and cash conversion cycle. It revealed that excess inventory significantly bared extra costs for just-in-time accustomed Japanese manufacturing firms. Moreover, in addition to handling inventories skillfully, distributing trade credits proficiently among buyers (AR) had important effects to better profitability. Both components together resulted in days of cash conversion cycle (CCC) to take strongly negative relationship with profitability. Other findings explain that the 2008‒09 financial crisis hit Japanese core manufacturing industries to a degree that the worsened profitability could not have been improved by managing payments to suppliers efficiently and by taking receivables as early as possible. However, it confirmed that dealing with inventories properly had significant effects even during the 2008‒09 financial crisis. The fact that days of accounting payables (AP) did not show any significance demonstrates the cash abundancy of Japanese manufacturing firms.

This article aims to investigate the relationship between working capital management and firm performance in an emerging market. The analysis is done over a long window spanning across 2000–2014 by using ordinary least square (OLS), fixed- and random-effects model and generalized method of moments (GMM) on 2,327 firm-year observations, a panel data of 179 companies listed on the S&P BSE 500 Index of Bombay Stock Exchange (BSE). For robustness, in addition to accounting performance, market-based performance measure has also been employed to measure firm performance. This study based on India finds a negative relationship between the working capital management and firm performance, necessitating the need to efficiently manage the working capital for enhanced profitability.

Cash has always being disregarded in financial decision making since it involves investment and financing in short term period. However, it is an important component in firm financial management decision. This study therefore investigates empirically the relationship between cash management and profitability in listed manufacturing companies in Nigeria. Cash conversion cycle is used as the measure for cash management as used in Raheman and Nasr (2007). Current ratio, debt ratio and sales growth were used as control variables. This study utilizes secondary data while Pearson’s correlation and regression analysis were used in analyzing the data for a sample of 15 listed manufacturing companies in Nigeria between 2005-2009.The results of the empirical findings show that there is a strong negative relationship between cash conversion cycle and profitability of the firms. It means that as the cash conversion cycle increases it will lead to decreasing profitability of the firms. The study...

This study empirically examines how resource dependence may be bargained away by supply chain finance (SCF) costs incurred to upstream suppliers and downstream buyers through cash-conversion-cycles. We found that a focal firm may get compensated for its resource contribution with an extra share of the financial gain by using the superior bargaining position over its vertical supply chain partners. Nevertheless, the focal firm may proactively restrain its use of bargaining power when the need for cooperative relationship with its supply chain partners prevails. Managerial and research implications for the introduction of power theory and relation theory to the SCF studies are discussed.

Purpose – The purpose of this paper is to seek to investigate the impact of cash conversion cycle (CCC) on performance (i.e. profitability) in Swedish small and medium-sized enterprises (SMEs) over the 2008-2011 period. Design/methodology/approach – The study uses a seemingly unrelated regression (SUR) model to analyse cross-sectional panel data covering 13,797 SMEs operating in four industries. Findings – The study provides empirical evidence that CCC significantly affects profitability. In addition, the firm-level control variables size, age, and industry affiliation significantly affect firm profitability. These findings imply that managers could increase firm profitability by improving their working capital management. Research limitations/implications – The present study is limited to a sample of Swedish SMEs in four industries; further research could examine the generalizability of these findings to other countries and industries. Practical implications – Improved working capi...