Cash Conversion Cycle, Cash Management and Profitability: An Empirical Study on the ISE Traded Companies

Tulay Yucel and Gulizar Kurt

Istanbul Stock Exchange Review, 2002, vol. 6, issue 22, 1-16

Abstract: This paper investigates the relationship of cash conversion cycle, a tool in working capital management, with profitability, liquidity and debt structure. The data covering the period of 1995-2000, of 167 firms whose stocks are listed on the Istanbul Stock Exchange (ISE). The cash conversion cycle, profitability, liquidity and debt structure were examined comparatively in this study on the basis of period, industry and firm size. It was examined that the relationships of these variables and the impact of the cash conversion cycle, liquidity and debt structure on the profitability of the company. The findings of our study suggest that cash conversion cycle is positively related to liquidity ratios and negatively related to return on asset and return on equity. High leverage ratio affects adversely the liquidity and profitability of the company. There is no statistically significant relationship between the cash conversion cycle and the leverage ratio. There is no significant difference in the cash conversion cycle on the basis of period, but it differs on the basis of sector and firm size.

Date: 2002
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