Effect of Cash conversion Cycle on Profitability: A case study of Binathman Household Supermarkets in Kenya

Abstract

The objective of this research study is to investigate the relationship between the cash conversion cycle (CCC) and profitability in the context of Binathman Household Supermarket in Mombasa County. The study examines how the management of receivables, cash, payables, and inventories impact the supermarket's profitability. The literary examination scrutinizes antecedent research investigations that have explored the connection between managing working capital and profitability in various sectors. Theoretical frameworks, for example, the operating cycle theory and the trade-off theory of liquidity, give important insights into the variables that influence decisions on working capital and their impact on profitability. The study utilizes multiple linear regression analysis to evaluate the effect of inventory conversion, receivables conversion, and payables conversion on profitability. The study employs secondary data and measures profitability through return on assets (ROA). The research findings indicate a significant negative relationship between the cash conversion cycle and profitability. A shortened CCC leads to increased profitability by improving cash flow, reducing financing costs, and enhancing operational efficiency.