Optimizing Working Capital ManagementHaitham Nobanee Department of Banking and Finance, The Hashemite University, P.O. Box 330221, Zarqa, 13133, Jordan. Tel: +96253903333; Fax: +96253826613 E-mail: nobanee@gmail.com Wasim K. AlShattarat College of Business Administration,Gulf University for Science and Technology (GUST) P.O.Box 7207 Hawally 32093 Kuwait, Tel : +965 2530 7338; Fax: +965 2530-7030E-mail: shattarat.w@gust.edu.kw Ayman E. Haddad The American University of Kuwait P.O. Box 3323, Safat 13034Kuwait Tel: +965 2224 8399; Fax: + 965-5715881E-mail: ahaddad@auk.edu.kw

Abstract Although the operating cycle, the cash conversion cycle, and the net trade cycle are more comprehensive measures of working capital management comparing with traditional measures of liquidity such as the current ratio and the quick ratio. However, these measures do not consider the optimal points of payables, inventory, and receivables. In this study we suggest more accurate measures of the efficiency of working capital management where optimal levels of inventory, receivables, and payables are identified, and total holding and opportunities cost are minimized and recalculating the operating cycle, the cash conversion cycle, and the net trade cycle according to these optimal points.

Keywords: Working Capital Management; Optimal Cash Conversion Cycle; Optimal Net Trade Cycle: Optimal Operating Cycle; Receivable Collection Period; Inventory Conversion Period; Payable Deferral Period

JEL classification: G30:G32:L25:O25

1Electronic copy available at: http://ssrn.com/abstract=1528894

Although historical experiences show that the average firm has 40% of its assets employed in current assets, and the typical corporate financial manager spends 80% of her or his time in managing day-to-day short term financial resources (seeDandapani, etal, 1993), traditional focus in corporate finance was on the long-term

financial decisions, particularly capital structure, dividends, investments, and company valuation decisions. However, the recent trend in corporate finance is the focus on working capital management. See (Ganesan, 2007). Some of the existing literature suggests that companies, on average, over-invest in working capital. For example, the U.S. corporations had roughly $460 billion unnecessarily tied up in working capital. One good example about the important the efficiency of a

corporations working capital management is given by Shin and Soenen (1998). They point out that Wal-Mart and Kmart had similar capital structures in 1994, but because Kmart had a cash conversion cycle of roughly 61 days while Wal-Mart had a cash conversion cycle of 40 days, that Kmart likely faced an additional $198.3 million per year in financing expenses. Such evidence demonstrates that Kmarts poor management of its working capital contributed to its going bankrupt (see Moussawi et al, 2006).

Efficiency of working capital management is based on the principle of speeding up collections as quickly as possible and slowing down disbursements as slowly as possible. This working management principal based on the traditional concepts of operating cycle, cash conversion cycle, weighted cash conversion cycle, and net trade cycle. The operating cycle of a firm is the length of time between the acquisition of raw materials and the collections of receivables associated with the sales of finished goods. Although the operating cycle conceders the financial flows comes from

2Electronic copy available at: http://ssrn.com/abstract=1528894

receivables and inventory, it ignores the financial flows comes from account payables, in this regards, Richards and Loughlin (1980) suggest the cash conversion cycle that considers all relevant cash flows comes from the operations. The cash conversion cycle can be defined as the length of time between cash payments for purchase of

raw materials and the collection of receivable associated with the sale of finished goods. However, the cash conversion cycle focuses only on the length of time financial flows engaged in the cycle and does not consider the amount of fund committed to a product as it moves through the cash conversion cycle. Therefore, Gentry, Vaidyanathan, and Wai (1990) suggest a weighted cash conversion cycle that takes into consideration both the timing of financial flows and the amount of fund committed to each stage of the cycle. The weighted cash conversion cycle can be defined as the weighted number of days funds are committed in receivables, inventories and payables, less the weighted number of days financial flows are deferred to suppliers. In addition to its complexity, another limitation of the weighted cash conversion cycle is the brake up of inventory into three components of raw materials, work in process, and finished goods is not available for outside investigators; hence, Shin and Soenen (1998) suggest the net trade cycle as an alternative measure for working capital management. They argue that the cash conversion cycle is an additive concept wares the denominators for the inventory conversion period, the receivable collection period, and the payable deferral periods are all different, making the addition of the cash conversion cycle components not really useful. They suggest equalizing the denominators of the inventory conversion period, the receivable collection period, and the payable deferral periods 1 . The net trade cycle is basically equal to the cash conversion cycle where the three complaintsThe cash conversion cycle formula is: (accounts receivables/sales)*365 +(inventory/CGS)*365 (accounts payables/CGS)*365 The net trade cycle formula is :{(accounts receivable + inventory accounts payables)*365}/sales1

3Electronic copy available at: http://ssrn.com/abstract=1528894

of the cash conversion cycle (receivables, inventory, and payables) are articulated as a percentage of sales, this makes the net trade cycle easier to calculate and less complex comparing with the cash conversion cycle and the weighted cash conversion cycle. Shin and Soenen (1998) also argue that the net trade cycle is a better working capital measure comparing with the cash conversion cycle and the weighted cash

conversion cycle because it indicates the number of "day sales" the company has to finance its working capital and the working capital manager can easily estimate the financing needs of working capital expressed as the function of the expected sales growth.

Although the operating cycle, the cash conversion cycle, the weighted cash conversion cycle, and the net trade cycle are powerful measures of working capital management and firm's liquidity comparing with the static traditional ratios such as the current ratio and the quick ratio that are inadequate and misleading in the evaluation of firm's liquidity, these cycles does not considers the optimal levels of receivables, inventories, and payables. The traditional link between these cycles (the operating cycle, the cash conversion cycle, the weighted cash conversion cycle and the net trade cycle) reported in the existing literatures (see, Shin and Soenen, 1998; Gentry, et al, 1990; Richards and Loughlin, 1980, Deloof, 2003) and firm's profitability, market value and liquidity is that shortening these cycles increases firms profitability, liquidity, and market value. Fore example; a short cash conversion cycle indicates that the company manage and process inventory more quickly, collects cash from receivables more quickly and slowing down cash payments to suppliers. This increases the efficiency of internal operations of a firm and results on higher

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profitability, higher net present value of cash flows, and higher market value of a firm (Gentry, et al, 1990).

The cash conversion cycle, the operating cycle, and the net trade cycle can be shortened by reducing the time that cash are tied up in working capital. This could happen by shortening the inventory conversion period via processing and selling goods to customers more quickly, ore by shortening the receivable collection period via speeding up collections, or by lengthening the payable deferral period via slowing down payments to suppliers. On the other hand, shortening the cash conversion cycle, the net trade cycle and the operating cycle could harm the firm's profitability; reducing the inventory conversion period could increase the shortage cost, reducing the receivable collection periods could makes the company's lousing it's good credit customers, and lengthening the payable period could damage the firm's credit reputation. Shorter cash conversion cycle (net trade cycle and operating cycle) associated with high opportunity cost, and longer cash conversion cycle (net trade cycle and operating cycle) associated with high carrying cost. Achieving the optimal levels of inventory, receivable, and payable will minimize both carrying cost and opportunity cost of inventory, receivable, and payable and maximizes sales, profitability and market value of firms. In this regards, we suggest an optimal cash conversion cycle, an optimal net trade cycle, and an optimal operating cycle as more accurate and comprehensive measures of working capital management Optimal Operating Cycle

An optimal operating cycle is an additive function. It measures the optimal length of inventory conversion period plus the optimal length of receivable collection period (see equation 1 and 2) 5

Optimal operating Cycle = Optimal Inventory Conversion Period + Optimal Receivable Collection Period (1)

Optimal Operating Cycle = (Optimal Inventory/Cost of Good Sold)*365 + (Optimal Receivables/ Sales)*365 ...(2)

Optimal Cash Conversion Cycle

An optimal cash conversion cycle is also an additive function. It measures the optimal length of inventory conversion period plus the optimal length of receivable collection period less the optimal length of payable deferral period (see equation 3 and 4)

Optimal Cash Conversion Cycle = Optimal Inventory Conversion Period + Optimal Receivable Collection Period Optimal Payable Deferral Period. (3)

Optimal Cash Conversion Cycle = (Optimal Inventory/Cost of Good Sold)*365 + (Optimal Receivables/ Sales)*365 (Optimal Payables/Cost of Good sold)*365.(4)

Optimal Net Trade Cycle

An optimal net trade cycle is also an additive function. It measures the optimal length of inventory conversion period plus the optimal length of receivable collection period less the optimal length of payable deferral period, where optimal inventory conversion period and optimal length of payable deferral period are expressed on days sales. (see equation 5, 6 and 7)

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Optimal Net Trade Cycle = Optimal Inventory Conversion Period + Optimal Receivable Collection Period Optimal Payable Deferral Period. (5)

Optimal Net Trade Cycle = (Optimal Inventory/Sales)*365 + (Optimal Receivables/ Sales)*365 (Optimal Payables/Sales)*365.(6)

Optimal Net Trade Cycle = {(Optimal Inventory + Optimal Receivables - Optimal Payables)*365}/Sales.(7)

Optimal Inventory Level

One of the best-known optimal inventory level approaches is the Economic Order Quantity model (EOQ) 2 (see Ross et al, 2008). The basic idea of this model is plotting the total cost of currying inventory with different inventory quantities as in Figure 1.

As shown in Figure 1, inventory carrying costs increase and inventory shortage costs decrease as inventory level increase and we attempt to identify the minimum total cost point Q*.

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There are many ways to find the optimal inventory level, in addition to the classic EOQ model, optimal inventory level could be identified using Shortages Permitted Model, Production and Consumption Model, Production and Consumption with Shortages Model , and EOQ with Shortages and Lead Time. Moreover, there are money other new optimal inventory models developed in the recent literature, for example, an EOQ model under retailer trade credit policy suggested by Huang and Hsu (2007), this model identifies the optimal inventory level under permissible delay in payments where the supplier would offer the retailer trade credit and the retailer will also offer a trade credit to his clients.

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Figure 1 Optimal Inventory Level

Cost of Holding Inventory

Total Cost

Carrying Cost

Shortage Cost

Q* Optimal Quantity

Inventory Quantity

Source: Ross, Westerfield, and Jordan, 2008, Corporate Finance Fundamentals, Eighth's Edition, McGraw Hill. Carrying costs are increased as inventory level increased. Shortage costs are decreased as inventory level increased. Total costs are the sum of currying and shortage costs.

Optimal Accounts Receivable

An optimal credit amount could be identified by the point ware the incremental cash flows from increased sales stimulated by offering credit to the customers equals the costs of carrying additional investments in account receivables (see Ross et al, 2008). Therefore, an optimal amount of credit extended could be identified by plotting the total cost associated with granting a credit with different amounts of credit extended as in Figure 2.

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Figure 2 Optimal Amount of Receivables Total Costs

Cost of Granting Receivables

Carrying Costs

Opportunity Costs

$* Optimal Amount of Credit

Amount of Receivables

Source: Ross, Westerfield, and Jordan, 2008, Corporate Finance Fundamentals, Eighth's Edition, McGraw Hill. Carrying costs are increased when the amount of receivables granted are increased. Opportunity costs are the lost sales resulting from not granting credit. These costs decreased when the amount of receivables are increased. Total costs are the sum of currying and opportunity costs.

As shown in Figure 2, carrying costs increase and opportunity costs decrease as amount of credit extended increase and we attempt to identify the minimum total cost point $*. The carrying costs associated with granting a credit essentially comes from either the costs of cash discounts offered by the firm who grant the credit to its customers who pay early, or its could come from losses of bad debts, or its could be associated with managing credit and credit collections or running the credit department. Opportunity cost is the additional profit results from credit sales that are lost because credit is not granted (see Ross et al, 2008) 3 .

Optimal Accounts Payable3

Although there is many optimal amount of credit is easy to identify , but its difficult to quantify as pointed by Ross et al, (2008) there was some attempts to quantify the optimal amount of credit as in the study of Liebman (1972).

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Trade credit is an alternative financing choice to the short-term borrowing, trade credit is free but short-term borrowing is costly. When the company extends its trade credit by increasing its accounts payable it will save the cost of short-term borrowing. This means an increase of accounts payable associated with a decrease of short-term borrowing cost or opportunity cost of short-term borrowing. When the accounts payable increase some other kind of cost also increase, for example the carrying cost which are the cost of managing and running the payable department increases as the account payable increase. Other cost could also increase when accounts payable increase, for example, the possibility that a company could delay its payment to suppliers increase when the company extend its trade credit, this could damage the companys credit reputation and the company could lose some of the cash discounts offered by suppliers.

As shown in Figure 3, carrying costs increase and opportunity cost of short-term borrowing decrease as accounts payable amount increase and we attempt to identify the minimum total cost point $* 4 .

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There were some attempts to quantify the optimal amount of payables by Nerville and Tavis, (1973).

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Figure 3 Optimal Amount of Payables Total Costs

Cost of Payables

Carrying Costs

Opportunity Cost of Short-Term Borrowing

$* Optimal Amount of Payables

Amount of Payables

Carrying costs and delay of payments costs are increased when the amount of payables are increased. Opportunity costs of borrowing decreased when the amount of payables are increased. Total costs are the sum of currying and opportunity costs.

Some Empirical Evidence Although the suggested optimal cash conversion cycle, optimal net trade cycle and optimal operating cycle as more comprehensive and more accurate measure of the efficiency of working capital management comparing with the operating cycle, the cash conversion cycle, the weighted cash conversion cycle, and the net trade cycle, the information needed to test for its effectiveness is not available for external examiners. However, as a proxy, we test the stability of the effects of cash conversion cycle, net trade cycle and operating cycle on corporate performance over time. If our results show that the signs of the coefficients of operating cycle, the cash conversion cycle are not always negative and significant; this means that shortening the cash conversion cycle, the net trade cycle and the operation cycle does not always

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improves firms profitability and this signify the importance of identifying optimal levels of inventory, receivables and payables and then recalculate that cash conversion cycle, the net trade cycle and the operating cycle according to these optimal points. Therefore, in the following sections, we seek to examine the relationship between the length of the cash conversion cycle, the length of the net trade cycle and the length of the operating cycle and the firms profitability for different periods of time. Additionally, we also seek to examine the relationship between the lengths of receivable collection period, inventory conversion period, payable deferral period and firms profitability. A dynamic panel data analysis is used to test for the relationships between our variables. Our analysis is based on a sample of 5802 U.S. non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and the Over The Counter Market for the period 1990-2004 (87030 firm-year observations).

Data and Methodology The data set obtained from the Datastream &World Scope. The data includes yearly data of sales, cost of good sold, receivables, payables, inventory, and operating income. This data is used to calculate the receivable collection period, the inventory conversion period, the payable deferral period, the cash conversion cycle, the net trade cycle, the operating cycle, and the operating income to sales. The data includes all the non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and the Over The Counter Market. Some firms with missing values are excluded from the sample. The final sample contains 5802 companies covering the period of 1990-2004 (87030 firm-year observations).

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To investigate the relationships between our variables we use a Generalized Method of Moment System Estimation (GMM) applied to dynamic panel data. We used this estimation for the following reasons: first, our dependent variables are likely to be measured using annual data, and it seemed desirable to use a dynamic specification to allow for it, secondly, some of our exploratory variables (for example; the inventory conversion period, the receivable collection period and the payable deferral period) are likely to be jointly determined with the dependent variables in our model. Finally, there is a possibility of unobserved province specific effects correlated with the regressors, and it seemed desirable to control for such effects. De Granwe and Skdenly (2000) argue that the lagged dependent variable in the dynamic panel data estimation catch up some of the effects of omitted variables varying over time, so it helps to correct for autocorrelation. The Generalized Method of Moment System Estimation applied in this study is proposed by Arellano and Bover (1995) and Blundell and Bond (1998), the authors have shown in Monte Carlo estimations that the estimators behaves better than the GMM difference estimators proposed by Arellano and Bond (1991) for the short sample period and for variables are persistent over time. Roodman (2005) argue that the Arellano-Bond estimators have one and two steps variants. He also argue that the two-step estimates of the standard errors tend to be severely downward biased, therefore, we apply the finite sample correction for the asymptotic variance of the tow step GMM estimator (see Windmeijer, 2005). This estimation approach leads to the following estimation equations:

ois = + 1ois 1 + 2qr + 3tde + 4sgit + 5rcp + 6icpit + 7 pdp + 8ocit + 8ccc + 8ntc + it (8) it it it it it it it it

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Where ( ois it ) is the first deference the operating income to sales, the exploratory variables in our model includes ( oisit1 ) which is the differenced lagged dependent variable of operating income to sales, ( rcpit ) is the first difference of receivable collection period that measure the average number of days from the sale of goods to collection of resulting receivables. It is calculated as [(account receivable/sales) *365]. ( icpit ) is the first difference of the inventory conversion period which is the length of time on average needed to convert raw materials into finished goods and selling these goods. It is calculated as [(inventory/cost of good sold)*365]. ( pdpit ) is the first difference of the payable deferral period which is the average length of time needed to purchase goods and the payments for them. It is calculated as [(account payable/cost of goods sold)* 365]. ( cccit ) is the first difference of cash conversion cycle which is simply calculated as [Receivable collection period + Inventory conversion period - Payable deferral period]. ( nccit ) is the first difference of net trade cycle which is calculated as [Receivable collection period + Inventory conversion period - Payable deferral period] where inventory conversion period and payable deferral period are expressed in the form of days sales. ( ocit ) is the first difference of the operating cycle which is calculated as [Receivable collection period + Inventory conversion period]. The exploratory variables in our models also include some control variables such as ( sg it ), which represents sales growth [(this years sales previous years sales)/ previous years sales] and total debt to equity ratio ( tdeit ). In addition, we examine the relationship between profitability and liquidity using a traditional measure of liquidity the quick ratio ( qrit ). In this study we hypothesize that shortening the length of the cash conversion cycle improves the companys performance, we also hypothesize that shortening the length of the net trade cycle improves the companys 14

performance, and shortening the length of the operating cycle improves the companys performance. This means that the coefficient of the cash conversion cycle, the coefficient of the net trade cycle, and the coefficient of the operating cycle should be significant and negative for the full period of the study and also for the sub periods. We also hypothesis that shortening the length of the receivable collection period increases the companys performance, and we expect the coefficient of the receivable collection period to be significant and negative for the full period of the study and also for the sub periods. We also hypothesize that shortening the length of the inventory conversion period increases the companys performance, and we expect the coefficient of the inventory conversion period to be significant and negative for the full period of the study and also for the sub periods. And finally, we hypothesize that lengthening the payable deferral period should increase the company's performance, and the coefficient of the payable deferral period should be significant and positive for the full period of the study and also for the sub periods. Empirical Results In this section we present our estimation results concerning the determinants of working capital management on corporate performance. The estimated coefficients based on equation (8) reported on table (1) show that the estimated coefficients does not support the hypothesis that shorter net trade cycle associated with high firms performance for the full period, the first period, and the second period where the coefficients of the net trade cycle ( ntcit ) are significant and positive, our results only support this hypothesis for the third period where the coefficient is significant and negative. The resects also show that the length of the cash conversion cycle ( cccit ) has negative and significant impact on firms performance for the full period, the first

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period and the second period; while the coefficient of the third period is positive and significant. These results indicate that shortening the cash conversion cycle does not always improve the firms profitability. The coefficients of the operating cycle ( ocit ) and the receivable collection period ( rcpit ) are similar to the coefficients of the cash conversion cycle. The coefficients of the inventory conversion period ( icpit ) are similar to the coefficients of the net trade cycle ( ntcit ). The coefficients of the payable deferral period ( pdp it ) reported on table (1) does not also support the hypothesis of lengthening the payable deferral period will improve the firms performance for the full period where the coefficient is significant and negative, however, the coefficients of the payable deferral period ( pdp it ) for the first period, the second period and the third period support this hypothesis, where these coefficients are positive and significant. Looking at the lagged operating income to sales ( oisit1 ) indicates that the company's performance in the previous period have a strong positive effect on the companys performance in the current period for the full period, the second period, and the third period, yet, the company's performance in the previous period have a strong positive effect on the companys performance in the current period for the first period. We also examine whether the companies performance is affected by other variables; our results show that increases in the quick ratio ( qrit ) is negatively associated with firms performance ( ois it ) for the second period and the third period, while its positively associated with firms performance ( ois it ) for the full period and the first period, these results certify the traditional trade off between profitability and liquidity for the second period and third period. Our results reported on table (1) also show that sales growth ( sg it ) have significant and

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positive impact on firms performance ( ois it ) for all the study periods except of the first period. The results also show that total debt to equity ( tdeit ), as a measure of capital structure is not significantly related to profitability ( ois it ) except for the first period. The results of Arellano-Bond test that the average autocoveriance in residuals of order 2 is 0 does not reject the null hypothesis of no second-order serial correlation. Table 1Tow-Steps Results of GMM System Estimation for the Relationship between Working Capital Management Measures Including the Cash Conversion Cycle and Firm's PerformanceDependent Variable: Coefficients Full period 1990-20040.206659** 0.0402768** -2.24e-07 0.0659458** -0.003019** 0.0017932** -0.0013854** -0.0006733** -0.0036728** 0.0055456** 0.0023825 -0.96

oisitExploratory Variables:

First period 1990-1994-0.2232951** 0.0656421** 8.00e-06** -0.025349** -0.0064501** 0.0029824** 0.0008988** -0.0020726** -0.0068257** 0.0109514** -0.0004322 -0.23

Second period 1995-19990.0794167** -0.0118433** -1.89e-06 0.0421588** -0.0039061** 0.00302** -0.0020063** -0.0013712** -0.0037147** 0.0071149** -0.0013406 0.60

Third period 2000-19940.1749876** -0.0053022* 3.66e-08 0.1548503** 0.0006227** -0.0042699** 0.0001951** 0.0019571** 0.0031043** -0.0041828** -0.000898 -1.05

oisit 1 qrit tdeit sgit rcpit icp it pdpit ocit cccit ntcitConstant Order2

Table 1 reports the results of Arellano-Bond dynamic panel-data two- steps GMM system estimation for the relationship between the components of working capital management and firm's performance for an unbalanced sample of 5802 U.S. non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and the Over The Counter Market for the period 1990-2004 and the three sub-periods. The dependent variable and all the independent variables are in the form of first difference. (oisit) is the dependent variable of operating income to sales, the exploratory variables are: (oisit-1) is the lagged operating income to sales, (qrit) is the quick ratio, (tdeit) is the total debt to equity ratio, (sgit) is the sale growth, (rcpit) is the receivable collection period, (icpit) is the inventory conversion period, (pdpit) is the payable deferral period, (ocit) is the operating cycle, (cccit) is the cash conversion cycle, (ntcit) is the net trade cycle cycle, and Order2 is the Arellano-Bond test that average autocovariance in residuals of order 2 is 0. Note: * significant at 95% confidence level, * *significant at 99% confidence level

The results reported on table (1) show that shorter cash conversion cycle, shorter net trade cycle, and shorter operating cycle does not always associated with an increase

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on firms profitability; this signify the importance of achieving an optimal lengths of the cash conversion cycle, the net trade cycle, and the operating cycle that minimize both carrying cost and opportunity cost of inventory, receivable, and payable and maximizes profitability and market value of firms. 3. Conclusion The traditional link between the cash conversion cycle, the net trade cycle, the operating cycle and firm's profitability is that shorter cash conversion cycle, shorter net trade cycle, and shorter operating cycle associated with high firms profitability. This could happen by shortening the inventory conversion period via processing and selling goods to customers more quickly, by shortening the receivable collection period by speeding up collections, or by lengthening the payable deferral period via slowing down payments to suppliers. On the other hand, shorter cash conversion cycle, shorter net trade cycle, and shorter operating cycle could associated with poor firm's profitability; this could happen when reducing the inventory conversion period, an increase on the shortage cost could occur, or when reducing the receivable collection period, the company could louse it's good credit customers, or when lengthening the payable period, a damage on the firm's credit reputation could take place. However, achieving an optimal levels of inventory, receivable, and payable will minimizes the carrying cost and opportunity cost of holding inventory, receivable, and payable and leads to an optimal length of the cash conversion cycle, net trade cycle, and operating cycle. Hence, we suggest an optimal cash conversion cycle, an optimal net trade cycle, and an optimal operating cycle as more accurate and comprehensive measure of working capital management that maximizes profitability of firms.

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Richards, D. Laughlin, J., 1980, A Cash Conversion Cycle Approach to Liquidity Analysis, Financial Management 9, 1, 32-38. Ross, S., Westerfield, R., and Jordan, B., 2008, Corporate Finance Fundamentals, 8th Edition, Mcgraw Hill. Roodman, D., 2005, xtabond2: Stata Module to Extend xtabond Dynamic Pane Data Estimator, Center of Global Development, Washington. Shin, H., and L. Soenen, 1998, Efficiency of Working Capital and Corporate Profitability, Financial Practice and Education 8 (2), 37-45. Windmeijer, F., 2005, A Finite Sample Correction for the Variance of Linear Efficient Two-Step GMM Estimators, Journal of Econometrics, 126, 25/51.

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