Relationship of Cash Conversion Cycle with Firm Size, Working Capital Approaches and Firm’s Profitability: A Case of Pakistani Industries

Abstract

This study is aimed to analyze the comparative performance management of different industrial groups at single time scale from multiple perspectives. The study investigates the relationship between the length of CCC, firm size, firm profitability and aggressive/conservative Working Capital policies of 12 industrial groups. Descriptive analysis, Pearson correlation and Analysis of Variance (ANOVA) with post-hoc test (Least Significant Differences) have been used for empirical investigation. The data is collected from the financial statements of the 157 public limited companies listed in the Karachi Stock Exchange (KSE) for the year 2009. It is found that significant differences lie among the mean values of CCC across the Industries and more specifically, Oil and Gas industry is significantly different from all the other industries in term of its length of CCC. Findings of the study show that there is a significant and positive relationship between firms’ aggressive investing policies and conservative financing policies. It is concluded that length of CCC has negative relationship with sales revenue, return on equity (ROE) and financing policies of the firms and has positive relationship with total assets, return on assets (ROA) and investing policies of firms. The practical implications of this study are for the management of the firms to consider the importance of the length of CCC in formulating their policies because the length of CCC is closely related to aggressive/conservative Working Capital approaches of firms. This is the first study of its nature conducted in Pakistan so far which has taken into account all these variables simultaneously and tried to investigate their relationship with each other.