Return on Asset and Return on Equity Effects of Net Operating Cycle: Jordanian Study

Abstract

One indicator of short-term liquidity uses the activity ratios as a liquidity measure. The net operating cycle of a firm is the sum of the number of days it takes to sell inventory and the number of days until the resulting receivables are converted to cash subtracting the number of days of payables.

The current study aims to inspect the effect of the net operating cycle on the profitability of Jordanian services’ sector represented by return on asset (ROA) and return on equity (ROE) during the period from 2009 until 2013.

The results of the study shows that there is no significant effect of net operating cycle on health care and hotels sectors’ return on asset (ROA), there is no significant effect of net operating cycle on health care sectors’ return on asset (ROA) and there is no significant effect of net operating cycle on hotels sectors’ return on asset (ROA). Also the results indicates that there is no significant effect of net operating cycle on health care and hotels sectors’ return on equity (ROE), there is no significant effect of net operating cycle on health care sectors’ return on equity (ROE) and there is no significant effect of net operating cycle on hotels sectors’ return on equity (ROE).

Keywords: Net Operating Cycle, Return on Asset (ROA), Return on Equity (ROE), Amman Stock Exchange (ASE).