Abstract
This study examines if there is a difference between the Profitability of Jordanian industrial companies which have a low cash conversion cycle and the Profitability of those which have a high cash conversion cycle. Moreover, eight indexes have been developed to help the investor and the manager of the company in Jordan in to make their decisions. To achieve the objectives of the study, a sample of 45 Jordanian industrial companies listed at Amman Stock Exchange (ASE) was studied. The study covered the period from 2000 to 2007. T-Tests and Mann-Whitney-U Tests were used to test the four hypotheses of the study. It was concluded that there was a statistically significant difference among the companies that have a high cash conversion cycle and those which have a low cash conversion cycle. Eight indexes of performance differed between companies with high cash conversion cycles and companies with low cash conversion cycles.
Highlights
The global economy has witnessed the worst crisis since the thirties of the last century and as the global crisis began in the developed countries, in the United States of America, most of economic sectors were affected, especially the industrial sector
As for (Afza and Nazir, 2007) they found the negative relationship between working capital policies and profitability. (Jose, et al.,1996) introduce a strong case can be that aruges that more aggressive liquidity management is associated with higher profitability for several industries, (Hill, et al, 2009) and their results indicate that increases in sales growth and sales volatility causes firms to manage operating working capital more aggressively. The results of these analyses indicated that the cash conversion cycle was more effective than the current ratio in diagnosing the health of each company’s working capital cash flows
After deletion in table 2 it was shown that the average of cash conversion cycles was about 235 day, the average of (ROA) was 0.044, the highest value was 20%, the lowest value was -30%, and the highest value of the inventory period was 15115.7 days, which refers to Amana For Agr. & Industrial Investment Company because cost of sales was 22929 Jordan Dinar (JD), inventory 949553(JD)
Summary
The global economy has witnessed the worst crisis since the thirties of the last century and as the global crisis began in the developed countries, in the United States of America, most of economic sectors were affected, especially the industrial sector. It has become necessary to work to find the means by which the industrial public shareholding companies should deal with managing working capital in order to increase the profitability of these companies and their value and to ensure their survival and continuity, as working capital represents 51% of the industrial sector total assets according to (Sabri, 2010). This percentage is supported by the one that has been concluded in (Al-Naif, 2005) of 55%. This percentage is high compared with the result of (Hill, 2009) of a study made in the United States of America which indicated that the proportion of working capital to total assets is 22%
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