Impact of an optimal cash conversion cycle on firm return on asset; evidence taken from sectors in PSX

Abstract

This study is done to carry out to inspect the relationship between the cash-conversion cycle (with its components) on firm’s return on asset (ROA). The evidence is taken from sectors in Pakistan stock-exchange. The set of the independent variables that are cash-conversion cycle, days-sales inventory, days-sales outstanding and the days- payable outstanding which was tested on the firm return on asset (ROA) (profitability measure) The sample size of 25 manufacturing companies from different sectors listed in Pakistan stockexchange is taken and the period range of six years from 2013 to 2018. In this study the impact of the cash-conversion cycle is investigated by it components on the firm- profits. The inventoryconversion period and the receivable-collection period found negative with the firms- profit. The other payable outstanding is positive related to the firms- profit. Combination of all the components and the results this study has the inverse relationship between the cash-conversion cycle and the return on asset (ROA). This relation is tested by regression and the correlation analysis in this study.