Impact of Cash conversion cycle and it's components on Profitability of small-medium listed firms of Pakistan

Abstract

This research was carried out to inspect the relationship between cash conversion cycle (it's components) and firm's profitability. Hence, evidence was taken from small medium listed entities of Pakistan. A set of variables (cash conversion cycle, days sales inventory, days sales outstanding and days payable outstanding) were tested with return on assets (profitability measure). A sample of 25 listed small medium firms, one from each 23 sectors of Pakistan stock exchange was studied for the period of six year ranging from 2012 - 2017. The impact of consolidated cash conversion cycle was evaluated by investigating the individual impacts of components of cash conversion cycle on firms profitability. Inventory conversion period and receivable collection period affect was found negative with the firm's profitability. However payable outstanding period was positively related with firm's profitability. Combining all these effects this research concludes that there exists a significant inverse relationship between cash conversion cycle and firm's profitability. The test was carried out using regression and correlation analysis.