Effect of cash conversion cycle on profitability in mtn and globacom

Project Abstract

This research study aims to investigate the effect of the cash conversion cycle (CCC) on the profitability of two major telecommunication companies in Nigeria, MTN and Globacom. The cash conversion cycle is a crucial metric that measures the efficiency of a company's working capital management by analyzing the time it takes for a firm to convert its investments in inventory and other resources into cash flows from sales. The study will utilize financial data from both MTN and Globacom to calculate and analyze their respective cash conversion cycles over a specific period. By comparing the CCC of the two companies, the research seeks to identify any significant differences in their working capital management strategies and how these differences impact their profitability levels. Furthermore, the research will explore the relationship between the cash conversion cycle and key profitability indicators such as return on assets (ROA) and return on equity (ROE). By conducting regression analysis and other statistical techniques, the study aims to determine the extent to which variations in the CCC influence the financial performance of MTN and Globacom. The findings of this research are expected to provide valuable insights for managers, investors, and other stakeholders in the telecommunications industry. Understanding the impact of the cash conversion cycle on profitability can help companies optimize their working capital management practices, improve financial performance, and enhance shareholder value. Overall, this study contributes to the existing literature on working capital management and corporate profitability by focusing on the specific case of MTN and Globacom in the Nigerian telecommunications sector. By examining how differences in the cash conversion cycle affect the financial performance of these companies, the research aims to offer practical recommendations for enhancing operational efficiency and sustainable growth in the industry. In conclusion, the research findings are anticipated to shed light on the importance of effective working capital management in driving profitability and competitive advantage in the telecommunications sector. By highlighting the relationship between the cash conversion cycle and financial performance, this study aims to provide valuable insights for practitioners, academics, and policymakers interested in enhancing the overall efficiency and sustainability of businesses in the industry.

Project Overview

<p> </p><p>Introduction</p><p>Working capital management is a very important component of corporate finance because it directly affects the liquidity and profitability of the company. The working capital is known as life giving force for any economic unit and its management is considered among the most important function of corporate management. Due to that, every organization whether, profit oriented or not, irrespective of size and nature of business, requires necessary amount of working of working capital (Achchuthan &amp; Kajananthan, 2013). Working capital management is a simple and straight forward mechanism of ensuring the ability of the firm to fund the difference between the short term assets and short term liabilities (Kajananthan &amp; Achchuthan, 2013). It deals with current assets and current liabilities. There are two basic ways to assess the working capital management of firms.</p><p>They are balance sheet concept and studying current assets and current liabilities Concept of Cash Conversion Cycle (CCC). The Cash Conversion cycle measures the number of days between actual cash expenditures on purchase of raw materials and actual cash receipts from the sale of products or services (Eljelly, 2004). Since every corporate organization is extremely concerned about how to sustain and improve profitability, hence they have to keep an eye on the factors affecting the profitability. In this regard, liquidity management having its implications on risks and returns of the corporate organizations cannot be overlooked by these organizations and hence cash conversion cycle being indicator of the liquidity management needs to be explored as to how it may affect the profitability of the corporate units. Today due to changing world’s economy, advancement of technology and increased global competition among the companies, every company is striving to enhance their profits and for that companies are putting every effort to bring their cash conversion cycle at optimum level to increase profitability.</p> <br><p></p>