Impact of Cash Conversion Cycle on Profitability. An Empirical Study on the Listed Hotel Companies in Sri Lanka

Cash conversion cycle (CCC) is one of the most widely used measurements to evaluate the risks and returns associated with liquidity management. Each company is highly concerned with how profitability can be maintained and strengthened, so they have to keep an eye on the factors that influence profitability. Therefore, the main purpose of this study is to identify the impact of cash conversion cycle on profitability of selected listed hotel companies in Colombo Stock Exchange (CSE), Sri Lanka. The present study is concerned about evaluating how CCC affects the profitability of listed hotel companies within the consumer service sector in CSE. In terms, profitability was calculated using return on assets (ROA) and return on equity (ROE). CCC measured using the inventory turnover period (ITP), receivable turnover period (RTP) and payable turnover period (PTP). The sample covered the 30 listed hotel companies and took the period as twelve years starting from 2011/12 to 2022/23. In this study, regression and correlation statistical techniques were used to estimate the impact and the relationship between CCC and profitability. According to regression analysis, ITP has a negative relationship with ROA and a positive relationship with ROE. Further, the study found that PTP and RTP are negatively affected by ROA and ROE. The study reveals that CCC positively correlated with profitability and has a significant impact on profitability. There was a significant impact of CCC on profitability in listed hotel companies of the consumer service sector in CSE. These results of the study suggest and recommend that managers can create value for their shareholders by maintaining effective and efficient CCC.