The Effect of Cash Conversion Cycle on Profitability of the firm: A Study of Oil & Gas and Engineering Sector of Pakistan.

Abstract

The research is aiming at assessing the effect of cash conversion cycle on profitability of the firm. Three components are used to measure cash conversion cycle (CCC); average receivable period (ARP), average inventory period (AIP) and average payable period (APP). Henceforth, cash conversion cycle and its determinants are taken as Independent variables. The dependent variable is profitability being measured by return on asset (ROA). The data was collected with the help of pooled data containing a sample of 10 firms of two manufacturing sector such as Oil & Gas and Engineering, listed on PSX for the period 2010-2018. Regression and correlation techniques were used for analysis and come up with the outcomes that average receivable period and average inventory period have an adverse significant association with profitability of the firm except average payable period. In the end, there exists a highly negative significant association among CCC and firm’s profitability as ROA. The results showed that lesser the no. of days of CCC, the firm has greater profitability. This paper contributes to the literature, which shows the association amongst CCC and ROA.