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Article
Publication date: 19 July 2011

Haitham Nobanee, Modar Abdullatif and Maryam AlHajjar

The purpose of this paper is to investigate the relation between a firm's cash conversion cycle and its profitability.

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Abstract

Purpose

The purpose of this paper is to investigate the relation between a firm's cash conversion cycle and its profitability.

Design/methodology/approach

The relation between the firm's cash conversion cycle and its profitability is examined using dynamic panel data analysis for a sample of Japanese firms for the period from 1990 to 2004. The analysis is applied at the levels of the full sample and divisions of the sample by industry and by size.

Findings

A strong negative relation between the length of the firm's cash conversion cycle and its profitability is found in all of the authors’ study samples except for consumer goods companies and services companies.

Originality/value

Traditional focus in corporate finance was on the long‐term financial decisions, particularly capital structure, dividends, and company valuation decisions. However, the recent trend in corporate finance is the focus on working capital management. Most of working capital management literature is based on the US experience. This study investigates the relation between the firm's cash conversion cycle and its profitability of Japanese firms where the organizational structure is totally different from that of the US firms; most of the Japanese firms are interconnected and related through corporate groups (keiretsu).

Details

Asian Review of Accounting, vol. 19 no. 2
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 1 August 1993

Jimmy D. Moss and Bert Stine

Many businesses are faced with liquidity problems for various reasons. This is especially true for small businesses, since most must operate with fewer sources of both short and…

2435

Abstract

Many businesses are faced with liquidity problems for various reasons. This is especially true for small businesses, since most must operate with fewer sources of both short and long term financing than larger firms. Where less financing is available, more assets must be held in liquid form to meet daily transactions and emergency requirements. Larger firms, that have better access to both the money and capital markets, can afford to hold fewer current assets and meet cash requirements just as quickly and efficiently through borrowing.

Details

Managerial Finance, vol. 19 no. 8
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 29 February 2024

Gerasimos Rompotis

I seek to identify whether cash flow management can affect the performance and risk of the Greek listed companies.

Abstract

Purpose

I seek to identify whether cash flow management can affect the performance and risk of the Greek listed companies.

Design/methodology/approach

This study examines the relationship of cash flow management with performance and risk, using a sample of 80 non-financial companies listed in the Athens Exchange. The study covers the period 2018–2022, and panel data analysis is applied. Both financial performance and stock return are taken into consideration, while risk concerns the volatility of the companies’ share prices. The various explanatory variables used include the net cash flow, free cash flow, cash conversion cycle days, cash flow from operating activities, cash flow from investing activities, cash flow from financing activities, inventory days, customer days and supplier days.

Findings

The empirical results provide evidence of a positive relationship between financial performance and net cash flow and free cash flow. In addition, operating cash flow is positively related to financial performance. The opposite is the case for investing and financing cash flow. Finally, some evidence of a negative relationship between financial performance and inventory and customer days is provided too. On the other hand, stock return and risk are not related to the cash flow management variables at all.

Originality/value

To the best of my knowledge, this is one of the few studies to examine the relationship of cash flow management with performance and risk, using data from the Greek stock market. The results can form an effective selection tool for investors seeking Greek companies with the highest financial performance potential, which may reward them with higher dividends.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 1 June 1989

Carole CPA Cheatham and Ph.D.

Once a firm has acquired the necessary buildings and fixtures to begin operations, most of its cash flows are the result of investing in and selling of current assets. The bulk of…

Abstract

Once a firm has acquired the necessary buildings and fixtures to begin operations, most of its cash flows are the result of investing in and selling of current assets. The bulk of a firm's cash expenditures are for the purpose of either purchasing or adding value to inventories. Inventories that have already been sold but have not yet generated cash inflows are listed as accounts receivable. Excess cash that is not currently used to finance other current assets or that is not needed to pay immediate debt obligations is temporarily invested in marketable securities. All of a firm's cash inflow from normal operations is generated from sales. Sales occur as the eventual result of the liquidation of inventories. Consequently, except for the infrequent events of replacing or adding to fixed assets, cash flow management is virtually synonymous with current asset management.

Details

Managerial Finance, vol. 15 no. 6
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 30 March 2012

Bana Abuzayed

The purpose of this paper is to examine the effect of working capital management on firms’ performance for a sample of firms listed on a small emerging market, namely Amman Stock…

18841

Abstract

Purpose

The purpose of this paper is to examine the effect of working capital management on firms’ performance for a sample of firms listed on a small emerging market, namely Amman Stock Exchange.

Design/methodology/approach

The paper includes a conceptual as well as empirical analysis, in which data from a sample of listed firms for the period from 2000 to 2008 are analyzed to examine if more efficient working capital management improves firms’ accounting profitability and firms’ value. Cash conversion cycles as well as its components are used as measures of working capital management skills. In this study, two performance measures are used: one accounting and one market measure, believing that wealth maximization is shareholders’ main concern. To bring up more robust results, this study used more than one estimation technique, including panel data analysis, fixed and random effects, and generalized methods of moments.

Findings

Using robust estimation techniques this study found that profitability is affected positively with the cash conversion cycle. This indicates that more profitable firms are less motivated to manage their working capital. In addition, financial markets failed to penalize managers for inefficient working capital management in emerging markets.

Originality/value

The paper's originality and value lies in suggesting that policy makers in emerging markets need to motivate and encourage managers and shareholders to pay more attention to working capital through improving investors’ awareness and improving information transparency.

Details

International Journal of Managerial Finance, vol. 8 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 1 May 2002

M. Theodore Farris and Paul D. Hutchison

Over recent years supply chain management has grown in importance because of the proliferation of improved information flows, outsourcing practices, strategic alliances and…

9073

Abstract

Over recent years supply chain management has grown in importance because of the proliferation of improved information flows, outsourcing practices, strategic alliances and partnerships, and the reshaping of the organizational focus from functional silos toward integrated activities. Logistics and supply chain management emphasize achieving lowest total cost through synergistic interaction of all supply chain components. The cash‐to‐cash (C2C) metric is an important measure as it bridges across inbound material activities with suppliers, through manufacturing operations, and the outbound sales activities with customers. This paper first defines how to calculate C2C. It then overviews the importance of measuring C2C, using both accounting and supply chain management perspectives. Next, it identifies key leverage points that are necessary to manage C2C effectively. Finally, future research questions are developed that should prove useful in guiding the development of C2C as a usable metric.

Details

International Journal of Physical Distribution & Logistics Management, vol. 32 no. 4
Type: Research Article
ISSN: 0960-0035

Keywords

Article
Publication date: 3 August 2020

Kofi Amponsah-Kwatiah and Michael Asiamah

This study examines the effect of working capital management on profitability of listed manufacturing firms in Ghana.

3068

Abstract

Purpose

This study examines the effect of working capital management on profitability of listed manufacturing firms in Ghana.

Design/methodology/approach

The study employs a quantitative research approach within the causal research design using a balance panel of 20 manufacturing listed firms from 2015 to 2019.

Findings

The study reveals that inventory management, account receivables, account payables, cash conversion cycle, current asset, current ratio and firm size have positive effects on return on assets (ROA) and return on return on equity(ROE) whilst leverage affects them negatively.

Research limitations/implications

The study only covers 20 manufacturing firms generally due to data unavailability. However, the outcome has useful information for manufacturing firms.

Practical implications

The study brings to light effective ways of improving the profitability of manufacturing firms through policies.

Social implications

The findings are beneficial to manufacturing firms and countries for the purpose of improving performance of firms and welfare of the people through direct and indirect chain effects of increasing investments, remunerations and scales of production.

Originality/value

This study adds insights into the existing literature on working capital management namely methodology, effects of components on profitability of manufacturing firms and socioeconomic implications- evidence from Ghana.

Details

International Journal of Productivity and Performance Management, vol. 70 no. 7
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 31 May 2004

Abuzar M.A. Eljelly

This study empirically examines the relation between profitability and liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock…

9295

Abstract

This study empirically examines the relation between profitability and liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia. Using correlation and regression analysis the study found significant negative relation between the firm’s profitability and its liquidity level, as measured by current ratio. This relationship is more evident in firms with high current ratios and longer cash conversion cycles. At the industry level, however, the study found that the cash conversion cycle or the cash gap is of more importance as a measure of liquidity than current ratio that affects profitability. The size variable is also found to have significant effect on profitability at the industry level. Finally, the results are stable over the period under study.

Details

International Journal of Commerce and Management, vol. 14 no. 2
Type: Research Article
ISSN: 1056-9219

Keywords

Article
Publication date: 8 April 2014

Anna-Maria Talonpoika, Sari Monto, Miia Pirttilä and Timo Kärri

The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a…

2783

Abstract

Purpose

The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a modification of this measure that takes into account advance payments as a component of operational working capital.

Design/methodology/approach

A new measure, the modified cash conversion cycle (mCCC) is introduced and tested with empirical data of companies in Helsinki Stock Exchange.

Findings

The mCCC reveals the real efficiency of operational working capital in companies that receive advance payments to a remarkable extent.

Research limitations/implications

The mCCC can be used in empirical analysis in academic studies. In this paper, the empirical data are used only for testing the mCCC. The paper concerns received advance payments, but the mCCC can also be extended also to other components of operational working capital ignored by the traditional CCC.

Practical implications

The paper offers insights into the variations of CCC for class teachers, and business practitioners, particularly financiers, who deal with operational working capital, cash flow predictions and calculations.

Originality/value

There are current items that may have a remarkable effect on operational working capital, but traditionally only inventories, accounts receivable and accounts payable are discussed. The authors argue that also other current items should be taken into account, if they affect the efficiency of operational working capital. The new mCCC is encouraged to be used instead of the CCC when observing working capital management.

Details

International Journal of Productivity and Performance Management, vol. 63 no. 3
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 11 January 2013

Amarjit S. Gill and Nahum Biger

The purpose of this study is to investigate the impact of corporate governance on working capital management efficiency. This study also seeks to extend the findings of Gill and…

8460

Abstract

Purpose

The purpose of this study is to investigate the impact of corporate governance on working capital management efficiency. This study also seeks to extend the findings of Gill and Shah.

Design/methodology/approach

This study applied a co‐relational research design. A sample was selected of 180 American manufacturing firms listed on the New York Stock Exchange (NYSE) for a period of 3 years (from 2009‐2011).

Findings

The findings of this study indicate that corporate governance plays some role in improving the efficiency of working capital management.

Research limitations/implications

This is a co‐relational study that investigated the association between corporate governance and working capital management efficiency. There is not necessarily a causal relationship between the two, although the paper provides some conjectures to the findings. The findings of this study may only be generalized to firms similar to those that were included in this research.

Originality/value

This study contributes to the literature on the factors that improve the efficiency of working capital management, and in particular on the association between several features of corporate governance and the efficiency of working capital management. The findings may be useful for financial managers, investors, financial management consultants, and other stakeholders.

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