Issue 2, 2012

Volkov D. L., Nikulin E. D. Working Capital Management: Analysis of Cash Conversion Cycle’s Impact on a Company’s Profitability and Liquidity

The paper analyzes issues connected with a company’s working capital management. The purpose of the article is to analyze the relationship between cash conversion cycle — key measure of results of this managerial activity — and two target indicators of working capital management: a company’s profitability and liquidity. To reach this goal we conducted the regression analysis of annual financial reports of 73 Russian companies of different industrial affiliations for 2003–2006. It’s revealed that to increase liquidity (measured by current ratio) companies should increase their cash conversion cycle whereas to increase profitability they need to approach their cycle to zero. The latter means that depending on the industrial affiliation and the sign of cash conversion cycle, to increase profitability companies should adhere to different strategies, i.e. either to increase or decrease their cash conversion cycle. Keywords: Working Capital, Cash Conversion Cycle, Return on Assets, Liquidity.

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