Effect of Cash Conversion Cycle on Profitability: Listed Plantation Companies in Sri Lanka

Abstract

Working capital is needed for day-to-day operations of a firm. Cash conversion cycle (CCC) has been considered a useful measure of firm’s effective working capital management and especially the cash management. This study was an attempt to examine the effect of cash conversion cycle on profitability in ten listed plantation companies in Sri Lanka between 2008 and 2012. Results revealed that there is negative relationship between return on equity and cash conversion cycle.48.5 percent variation of ROE explained by CCC. Further Cash conversion cycle also had negative impact on Return on asset. In here 61.6 % explained by CCC.  In addition cash conversion cycle had 60.2 % negative impact on net profit. Therefore the effect of cash conversion cycle on total profitability as whole contains significant value.

Key words: Cash conversion cycle and Profitability