The Effect of the Cash Conversion Cycle on the Z-scores of Fresh Milk Companies in Greece

Abstract

The dairy products sector in Greece is very important for the Greek economy because it is associated to the primary sector and also has a strong exportation orientation. The impact of the financial crisis was evident in the dairy industry also along with the other sectors of the economy. The objective of this study is to examine the effect of the Cash Conversion Cycle as measure of liquidity, on the Z-scores of three selected fresh milk firms in Greece. We examine the market leader fresh milk company “DELTA”, in comparison to a new (2011) innovative firm regarding its distribution channel “THESS GALA PIES”, founded in Larissa, and to another similar sized and locality to the latter firm “TRIKKI” as representatives of the whole fresh milk/dairy products industry. On all three companies two Altman solvency prediction models are used: (a) the Altman Z΄-score (1983) model revised for non – publicly traded firms, and (b) the Altman Ζ΄΄-score (2000) model for firms operating in emerging markets. The regression analysis of the effect of the Cash Conversion Cycle on the Z-scores of both models for all entities showed that the two aforementioned sets of data are highly associated but the hypothesis of a linear relationship between them was rejected.