Abstract
Cash conversion cycle is considered one of the most important measures of management effectiveness, especially the cash flow and liquidity management. This study examines the relationship between cash conversion cycle and corporate profitability for the non-financial companies, from several industries, listed on the Bucharest Stock Exchange for a period of fifteen years from 2002 to 2016. The findings from a cross sectional multiple regression analysis pointed out a negative relationship between cash conversion cycle and the performance of firms. Based on the results from this paper it has been concluded that managers can improve the profitability of their firms by decreasing the number of days in cash conversion cycle.
Highlights
Cash conversion cycle is an important metric, developed by [1], and used to assess the effectiveness of the company’s overall financial health
We examine the relationship between cash conversion cycle and profitability of non-financial companies listed on the Bucharest Stock Exchange Market for a period of fifteen years from 2002 to 2016
The financial data were collected from the annual reports and financial statements of 330 Romanian companies listed on the Bucharest Stock Exchange Market, from 12 industries, namely wholesale/retail, construction, pharmaceuticals, manufacturing, plastics, machinery and equipment, metallurgy, chemicals, basic resources, transportation and storage, tourism, utilities, over the period 2002-2016
Summary
Cash conversion cycle is an important metric, developed by [1], and used to assess the effectiveness of the company’s overall financial health. The cash conversion cycle measures the number of days between the expenditure of the company’s cash for the acquisition of raw materials to manufacture the products, and the collection of cash obtained from the sale of the finished goods [2]. Cash flow management is a vital element of a company's operational strategies [4]. Cash conversion cycle is a measure of working capital efficiency. Enterprises manage working capital using three approaches: conservative, aggressive and moderate [5]. The conservative approach is where a company tends to use short-term sources only in urgent circumstances, while in other cases uses mainly long-term sources of finance for its operations. Permanent current assets are financed by long-term sources and short-term sources of finance are used to finance fluctuating current assets [5]
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