Working Capital Management and Cash Conversion Cycle – Thinking Outside the Box with New Insights

This paper scrutinizes the efficacy of the period-based cash conversion cycle (CCC) as a tool for working capital management. Recognizing that efficient working capital management is essential for a firm's liquidity, operational efficiency, and overall financial health, the study employs a multi-factor regression analysis to examine and contrast the effectiveness of the period-based cash conversion cycle (CCC-X) and the operational breakeven-based cash conversion cycle (CCC-B) on firms' profitability. The research, conducted using data from the financial statements of 83 listed industrial enterprises in India and Nigeria, reveals that the period-based CCC-X has no significant impact on the financial performance of the firms analyzed. Conversely, the operational breakeven-based CCC-B metric shows a highly significant influence on all profitability proxies utilized. The paper recommends that financial managers consider the operational breakeven point theory as a more effective approach to liquidity management.