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Cash-to-Cash (C2C) Length: Insights on Present and Future Profitability and Liquidity

Advances in Management Accounting

ISBN: 978-1-78973-278-8, eISBN: 978-1-78973-277-1

Publication date: 16 July 2019


The purpose of this research study is to use a large sample of the US companies and investigate the impact of cash-to-cash cycle’s (C2C) length on company profitability and liquidity in present and future periods and also examine whether such impact is dependent upon firm size or industry type. The authors investigate the association between C2C length and return on equity (ROE), as well as liquidity ratios for current and future years using linear regression models. The authors further examine such association for separate industries and explore the effect of size on the primary associations investigated. Consistent with prior literature, this study documents that C2C length is negatively (positively) associated with current profitability (liquidity). The authors also find that there is a significant negative association between C2C length and future profitability extending up to three years, but only for firms in the manufacturing industry. This research study shows that C2C length affects a firm’s current financial performance and managers should view C2C management as an important strategic tool. However, the authors caution that C2C management is not a “one size fits all” strategy and managers in smaller firms should pay close attention to their C2C cycle. The authors also show that firms in manufacturing industry will specifically benefit financially over long-term from C2C management. This article complements existing literature that examines the impact of working capital management on a firm’s financial performance and extends the literature by examining such relationship for different industries and firm sizes. Although the authors include various factors (e.g., firm size, leverage, growth, industry, year, and past performance) in regressions to control for observable differences among firms, there might be other unobservable differences that may have an effect on the results documented.



Guragai, B., Hutchison, P.D. and Farris, M.T. (2019), "Cash-to-Cash (C2C) Length: Insights on Present and Future Profitability and Liquidity", Burney, L.L. and Malina, M.A. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 31), Emerald Publishing Limited, Leeds, pp. 133-151.



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