Capital Management and Firm ’s Profitability: An Optimal Cash Conversion Cycle Haitham Nobanee Department of Banking and Finance‚ The Hashemite University‚ P.O. Box 150459‚ Zarqa‚ 13133‚ Jordan. E-mail: nobanee@gmail.com Abstract The traditional link between the cash conversion cycle and the firm ’s profitability is that shortening the cash conversion cycle increases firm ’s profitability. On the other hand shortening the cash conversion cycle could harm the firm’s operations and reduces profitability
Premium Accounts receivable Generally Accepted Accounting Principles Working capital
developing country like Bangladesh‚ working capital management has not been revisited very extensively. The working capital is considered as the life blood of a firm .And cash conversion cycle is the primary measure of working capital efficiency. Cash conversion cycle basically shows how long it takes a firm to convert resource inputs into cash flows. This consists of three parts‚ receivables collection period‚ payables deferral period and inventory turnover period. 2. Purpose of the study * To find
Premium Financial ratios Generally Accepted Accounting Principles Regression analysis
References: Afza‚ T. and Adnan‚ S.M. (2007)‚ “Determinants of corporate cash holdings: a case study of Pakistan”‚ Proceedings of Singapore Economic Review Conference (SERC ) 2007‚ Singapore‚ August 1-4‚ Organized by Singapore Economics Review and The University of Manchester (Brooks World Poverty Institute)‚ Singapore‚ pp.
Premium Working capital Inventory Cash conversion cycle
concept’ emphasizes the ‘source’. 1. Gross Working Capital The total current assets are termed as the gross working capital. It is also known as quantitative or circulating capital. It refers to firm’s investment in short term assets such as cash‚ marketable securities‚ accounts receivables‚ prepaid expenses‚ inventories etc. Significance a. Optimum investment in current assets.-: Inadequate working capital leads to insolvency and excessive will lead to less profitability. b. Financing
Premium Inventory Cash conversion cycle Working capital
NORTH SOUTH UNIVERSITY FIN 340 Working capital management Sec: 1 Group Project Submitted To: SaadHossain (sdf) Lecturer School of Business Submitted By: Group 4 Name ID Sheikh Fuad Ahmed 101 0078 030 Md. NazmulHossain 101 0196 030 Imtiaz Akbar 112 0146 030 AshifZaman Turin 112 0380
Premium Ford Motor Company Inventory Cash conversion cycle
aggressive current asset financing strategy because of the inherent risks of using short-term financing. a. True b. False(15-4) Cash conversion cycle F S Answer: b EASY 8. If a firm takes actions that reduce its days sales outstanding (DSO)‚ then‚ other things held constant‚ this will lengthen its cash conversion cycle (CCC). a. True b. False (15-4) Cash conversion cycle
Premium Inventory Balance sheet Working capital
the period divided by receivables turnoverd. Rio Tinto PLC’s average receivable collection period improved from 2010 to 2011 but then slightly deteriorated from 2011 to 2012. Operating cycle Equal to average inventory processing period plus average receivables collection period. Rio Tinto PLC’s operating cycle improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012. Average payables payment period An estimate of the average number of days it takes a company to pay its
Premium Rio Tinto Group Working capital Financial ratios
LITERATURE REVIEW In intention to discover the relationship between efficient working capital management and firm’s profitability(Shin & Soenen‚ 1998) used net-trade cycle (NTC) as a measure of working capital management. NTC is basically equal to the CCC whereby all three components are expressed as a percentage of sales. The reason by using NTC because it can be an easy device to estimate for additional financing needs with regard to working capital expressed as a function of the projected sales
Premium Working capital Accounts receivable Cash conversion cycle
and risk? 3. What is the difference between the firm’s operating cycle and its cash conversion cycle? 4. What are the benefits‚ costs‚ and risks of an aggressive funding strategy and a conservative funding strategy? Under which strategy is the borrowing often in excess of the actual need? 5. Why is it important for a firm to minimize the length of its cash conversion cycle? 6. Malaysian Products is concerned about managing cash efficiently. On the average‚ inventories have an age of 90 days
Premium Balance sheet Working capital Cash conversion cycle
firm ’s cash conversion cycle: Cash inflow "Most firms keep track of the average time it takes customers to pay their bills. From this they can forecast what proportion of a quarter ’s sales is likely to be converted into cash in that quarter and what proportion is likely to be carried over to the next quarter as accounts receivable" (Allen‚ Brealey‚ & Myers 2005). Lawrence having a positive cash balance would have help in the event of emergencies as well as unplanned outflow of money. Cash flow comes
Premium Working capital Money Accounts receivable