Title: Evidence for using the cash conversion cycle to test the relationship with the corporate profitability: an empirical analysis on a sample of textile Italian SMEs

Authors: Roberta Provasi; Paola Saracino; Patrizia Riva

Addresses: University of Milano-Bicocca, Edificio U6, Piazza dell'Ateneo Nuovo, 1, 20126 Milano MI, Italy ' University of Milano-Bicocca, Edificio U6, Piazza dell'Ateneo Nuovo, 1, 20126 Milano MI, Italy ' University of Eastern Piedmont, Via del Duomo, 6, 13100 Vercelli VC, Italy

Abstract: The cash conversion cycle (CCC) is a financial index with increasing importance in recent years since analysts and investors consider it effective for financial analyses. The index provides a correct and truthful situation of the company's ability to cope with its liabilities and allows the company to monitor the cash cycle with reference to purchase operations, production, and sales of products. The CCC is an index expressed by days, so it is necessary to know the days inventory outstanding, the days sales outstanding, and the days payable outstanding to calculate it. The purpose of this research is to analyse characteristics of the CCC and differences with respect to the other liquidity ratios and its relationship with the most relevant financial ratios through empirical applications to verify if it is a reliable index for making decisions regarding a company's cash flow strategy.

Keywords: cash conversion cycle; CCC; crisis early warning; insolvency KPI; financial index; cash flow; working capital management; WCM; days inventory outstanding; DIO; days payable outstanding; DPO; days sales outstanding; DSO.

DOI: 10.1504/IJEBR.2019.103107

International Journal of Economics and Business Research, 2019 Vol.18 No.4, pp.499 - 512

Received: 28 Aug 2018
Accepted: 22 Dec 2018
Published online: 15 Oct 2019 *

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