The impact of the cash conversion cycle and its components on firm profitability - An empirical study on pharmaceutical industry in Vietnam

Abstract

This research inspects the impact of a length of cash conversion cycle and its components on profitability the company by employing the random effect in panel data. Over 400 observation from 49 firms of pharmaceutical industry listed on HOSE and HNX from 2012 to 2018 is collected and analyzed. Descriptive statistic and correlation analysis are also applied. After running diagnostic test, the appropriate model is employed which is random effect regression. The study’s main findings are as follow. The regression’s outcome shows that there is a significant negative impact of cash conversion cycle on the profitability which measures by return on asset. In addition, length of collecting receivables also negatively impact of profitability. However, there is no relationship between days sale inventory, days of paying payables and profitability. The firm can boost profitability by shortening the length of cash conversion cycle. It can be shortened by diminishing inventory period via converting and selling goods quicker or lowering account receivable period.