Cash conversion cycle and profitability of listed consumer goods companies in Nigeria

Abstract

Cash conversion cycle is a significant financial unit that used to determine the efficiency of converting organization’s inventory into sales and orderly into cash. It is also one of most widely used measure in liquidity management on assessing capabilities of current assets and liabilities. To be successful and remain into existence, profitability would necessarily have concerned by organizations at their business operations. The objective of the study was to ascertain the effect of Cash Conversion Cycle on consumer goods companies’ firms in Nigeria. The study used the ex-post facto research design. The population for the study comprised quoted Consumer Goods Companies on the Nigerian Stock Exchange (NSE). The sample size of the study was ten quoted consumer goods companies purposively drawn from all the consumer good. The study focused on secondary data sources; obtained from annual financial reports and accounts. The dependent variable was proxied as cash flow from operations scaled by revenue. The data was analysed using correlation analysis and panel data regression. The sensitivity and robustness check were done using Robust Least Squares. The study results showed that inventory turnover period had a negative significant effect; secondly, average collection period had a non-significant negative effect. The study recommends that managers monitor inventory levels to ensure that unnecessary funds are not tied up in inventories. Therefore, it can be concluded that, there is a significant relationship between cash conversion cycle and firm’s profitability in consumer goods Companies operating in Nigeria by implying that there is a severe need to address on working capital requirement issues appropriately.