Does Cash Conversion Cycle Have Impact on Return on Assets of Nigerian Firms?

Abstract

The Cash Conversion Cycle [CCC] is a powerful performance metric for assessing how well a company is managing its capital. A company with lower cash conversion cycle is more efficient because it turns its working capital over more times per year, and that allows it to generate more sales per money invested. This paper sets out to investigate the impact of Cash Conversion Cycle on Return on Assets [ROA] of selected Nigerian quoted firms for the period, 2000-2009. Data was collected from annual reports of the sampled firms. Multiple regression technique was used in analyzing the models for testing the hypothesis.  Return on Assets as a  measure of profitability was used as the dependent variable while cash conversion cycle was used as independent variable. Size and Growth were incorporated as control variables. The results showed that cash conversion cycle had a significant negative relationship with profitability [ROA]. Based on the findings, the study recommends that firms try to always reduce the number of days in cash conversion cycle in order to increase profitability as to create value for shareholders.

Keywords: Cash conversion cycle, Working Capital, Inventory, Profitability, Return on Assets, Nigeria