International Journal of Research in Social Sciences
Year : 2018, Volume : 8, Issue : 11
First page : ( 448) Last page : ( 462)
Online ISSN : 2249-2496.

Cash conversion cycle and firms’ profitability-A study of tobacco Industry of Pakistan

Shabbir Muhammad Khurram

Lahore School of Accountancy and Finance, The University of Lahore

Online published on 2 September, 2019.

Abstract

Cash conversion cycle (CCC) is an important metric of not only effective working capital management but also the cash management of the firm. This research study was conducted with the objective to look into the relationship of the cash conversion cycle with profitability of the tobacco firms in Pakistan. This study is about evaluating how cash conversion cycle affects the profitability of listed tobacco firms in Pakistan. The research objective of the present study is to examine the existing literature regarding cash conversion cycle and its part in enhancing firm's profitability, which is measured by using the proxy of return on equity. The study takes return on equity as measures of profitability to represent dependent variable. Firm size and debt ratio are taken as control variables. The Cash conversion cycle is considered as an independent variable. Study takes into consideration the three listed tobacco firms of Pakistan for a period of 8 years starting from 2010 to 2017. The data was analyzed by pooled regression; the results showed a significant positive relationship of cash conversion cycle with return on equity. On the other hand, the debt ratio and firm size had an insignificant relationship with return on equity. The significant positive relationship of cash conversion cycle with return on equity in this study indicates that it is not always necessary thatlower the cash conversion cycle, greater would be the profitability of the tobacco firms in Pakistan, measured through return on equity. In this case it shows that tobacco firms are not under pressure to reduce their receivable collection and inventory selling time period in order to increase their profitability. Moreover the tobacco firms are also not under pressure to increase their payment period to increase their profitability, measured by return on equity.

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Keywords

Cash conversion cycle, return on equity, firm size and debt.

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