Working Capital Management and Cash Conversion Cycle – Thinking Outside the Box with New Insights

Enyi Patrick Enyi, Eze Ogbonnaya Nweze, Adebawojo Oladipupo, Olalere Mayowa David

Babcock University, Alex Ekwueme Federal University

This paper scrutinizes the efficacy of the period-based cash conversion cycle (CCC) as a tool for working capital management. Recognizing that efficient working capital management is essential for a firm's liquidity, operational efficiency, and overall financial health, the study employs a multi-factor regression analysis to examine and contrast the effectiveness of the period-based cash conversion cycle (CCC-X) and the operational breakeven-based cash conversion cycle (CCC-B) on firms' profitability. The research, conducted using data from the financial statements of 83 listed industrial enterprises in India and Nigeria, reveals that the period-based CCC-X has no significant impact on the financial performance of the firms analyzed. Conversely, the operational breakeven-based CCC-B metric shows a highly significant influence on all profitability proxies utilized. The paper recommends that financial managers consider the operational breakeven point theory as a more effective approach to liquidity management.

Article link: https://www.asianinstituteofresearch.org/JEBarchives/working-capital-management-and-cash-conversion-cycle-–-thinking-outside-the-box-with-new-insights