Cash Conversion Cycle, Inventory Turnover Ratio and Average Payment Period: Empirical Evidence of Market Performance & Economic Value Added From Pakistani Firms

Abstract

This study analyzes the effect of the proper management of working capital on financial performance of seven sectors in Pakistan. The sample period of the study is five years i-e from 2014 to 2018 . The data was taken from Data Stream Thomson Reuters International, financial statements .The dependent variables of the study is Earning Per Share (EPS) and Economic Value Added which is used as a proxy for firm financial performance. There are independent variables are average payment period (APP), inventory turnover Ratio (ITO) and Cash Conversion Cycle (CCC). Panel Data methodology used to analyze the impact of Working Capital Management on financial performance through market performance and accounting performance of seven non-financial sectors of Pakistan. Results derived that inventory turnover has a positively significant on Economic Value Added (EVA) while inventory turnover is negatively significant with earning per share. Average Payment period is which is negatively significant with Economic Value Added while Average Payment period also has also a negatively significant relationship with the earning per share. Cash conversion cycle is which is highly significant relationship with Economic Value Added while the cash conversion cycle has also negatively significant relationship with earning per share.