Abstract

Working capital is significant because of the effects it has on profitability and value. The conventional relationship between the cash conversion cycle and firm profitability is that reducing the cash conversion cycle improves firm profitability. Shortening the cash conversion time, on the other hand, can hurt the firm's operations and reduce profitability. This may occur when a firm takes steps to shorten the inventory conversion time; when a firm reduces the receivable settlement period, a firm could lose its good credit customers; and when a firm lengthens the payable deferral period, a firm may damage its own credit credibility. Identifying optimum levels of inventory, receivables, and payables where net keeping and opportunity costs are reduced and recalculating the cash turnover time based on these optimal stages, on the other hand, gives more full and precise insights into the performance of working capital management. According to the findings, the chosen firms have a poor average return on asset and return on equity, as well as a slightly negative cash conversion time. After adjusting for heteroskedasticity of data to minimise the effects of outliers, regression results revealed that cash conversion cycle has a significantly positive association with both return on assets and equity, indicating that it is not always necessary that the lower the cash conversion cycle, the greater the profitability measured through return on assets and equity. If the company will sell the goods and recover the receivables before paying the payables, the case would be somewhat different.