Impact of Cash Conversion Cycle on Firm's Profitability by Applying to Companies Listed on the Saudi stock market

Abstract

This study examines the complex relationships between Cash Conversion Cycle and firm profitability using a dataset of seven companies. The primary goal is to assess the subtle impact of the Cash Conversion Cycle (CCC) on two key dependent variables: Return on Assets (ROA) and Earnings Per Share (EPS). The focus of this investigation is on four independent variables: leverage ratio, quick ratio, current ratio, and debt to service ratio. In a departure from conventional wisdom, our findings call into question established financial theories by demonstrating the CCC's insignificant impact on ROA. However, the CCC's critical role in influencing EPS highlights the CCC's diverse implications for financial performance. The alignment of the Leverage Ratio with financial theories has a significant impact on ROA. This research provides nuanced insights into the complex dynamics of financial ratios and their collective impact on firm profitability. The findings provide strategic guidance for financial decision-makers, emphasizing the importance of a customized and sophisticated approach to working capital management in navigating the complexities of today's dynamic business environment, and the study recommended to create CCC strategies that are unique to each company's industry dynamics, Take into account industry benchmarks when optimizing the CCC for improved financial performance.