ANALYSIS OF THE EFFECT OF CASH CONVERSION CYCLE ON FIRM PROFITABILITY IN THE TECHNOLOGY SECTOR: AN APPLICATION ON BİST
- Cash Conversion Cycle Return on Assets Multiple Linear Regression
- Nakit Dönüşüm Süresi Aktif Kârlılığı Çoklu Doğrusal Regresyon
How to Cite
1.1. RESEARCH SUBJECT
Many studies in the literature examine the relationship between cash conversion time and profitability. The main reason for this is that it is vital to determine to what extent cash management, which is considered as one of the most important elements of working capital management, affects profitability of companies. In this context, the cash conversion cycle in the literature is examined from various perspectives. Some of the studies focus directly on the relationship between cash conversion cycle and profitability. Another part focuses on its components with cash conversion cycle. In this context, Ege et al. (2016) have obtained evidence that companies within the scope of BİST 50 are successful in cash management. On the other hand, Beyazgül and Karadeniz (2017) have reached the findings that the cash conversion cycle decreases as the firm size increases. The studies in the literature focus more on the relationship between cash conversion cycle and profitability. In this context, Aytekin and Güler (2014); Topaloğlu and Nur (2016); Zakari and Saidu (2016) found a positive relationship between cash conversion time and profitability. In this context, Aytekin and Güler (2014); Topaloğlu and Nur (2016); Zakari and Saidu (2016) found a positive relationship between cash conversion cycle and profitability. On the other hand, Vergili (2019); Garanina and Petrova (2015); Chang (2018) found a negative relationship between cash conversion time and profitability.
1.2. RESEARCH PURPOSE AND IMPORTANCE
After evaluating the literature in general, the purpose of the study should be revealed. This research aims to provide useful information for companies by revealing the cash conversion factors that affect profitability in the technology sector.
1.3. CONTRIBUTION of the ARTICLE to the LITERATURE
The research is the first study in the literature analyzing the relationship between the cash conversion cycle and profitability in BIST Technology Index (XUTEK). The contribution of the study to the literature can be considered in this context.
2. DESIGN AND METHOD
2.1. RESEARCH TYPE
This research uses an empirical method to analyze the relationship between the cash conversion cycle and profitability. The empirical method used in the study is a multiple linear regression model. In this context, various financial ratios were obtained by using the financial table data of the companies included in the BIST Technology Index between 2010-2019. In the research, the receivable collection period, inventory holding period, short term debt payment period, and cash conversion cycle were used as cash conversion factors. In this study, control variables were determined as leverage and size; asset profitability was used as a dependent variable.
2.2. RESEARCH PROBLEMS
This research tries to reveal how the increase or decrease in cash conversion cycles of technology companies will affect asset profitability. The main problem of this study can be defined in this way.
2.3. DATA COLLECTION METHOD
All of the data used in the study was calculated within the scope of the study. To calculate the financial ratios, the financial statements of the companies analyzed within the scope of the research were used. The financial statements of the companies were obtained from the website of the Turkish Public Disclosure Platform (kap.gov.tr).
2.4. QUANTITATIVE / QUALITATIVE ANALYSIS
In the analysis made within the scope of the research, a multiple linear regression model that describes a dependent variable with one or more independent variables is used. The multivariate regression model is seen as an appropriate model by the researchers to show which independent variable explains the dependent variable at a higher rate and to make predictions (Sarıkovanlık et al., 2019: 49).
2.5. RESEARCH MODEL
In the application made within the scope of the research, a regression model was established to analyze the relationship between cash return time and profitability. This model is shown in Formula 1.
AK= β0 + β1(LNBUY) + β2(KAL) + β3(LNATS) + β4(LNSTS) + β5(LNKVBÖS) + β6(LNNDS) + εi (1)
2.6. RESEARCH HYPOTHESES
The basic hypothesis of the model established within the scope of the research is that the decrease of ATS and STS will increase the active profitability; on the other hand, the increase in KVBÖS and NDS variables will increase the asset profitability. Whether the hypothesis was accepted or not was revealed in the findings and discussion section and analyzed and compared with other studies.
3. FINDINGS AND DISCUSSION
3.1. FINDINGS as a RESULT of ANALYSIS
In the study, evidence has been obtained that there is a negative and significant relationship between the natural logarithm of receivables collection time (LNATS) and profitability in technology companies. In this case, it can be said that the company will increase its asset profitability if it decreases the receivable collection time. Since firms' tight collection policies may cause a decrease in their sales, it is recommended to provide flexibility in the collection policy and shorten the maturity periods as much as possible. On the other hand, a negative and significant relationship was found between the LNSTS variable, which indicates the time of stock consumption in the technology sector and profitability. In other words, decreasing the stock consumption period of the company will positively affect profitability.
There is a significant and positive relationship between LNKVBÖS and asset profitability. In other words, the increase in the company's short-term debt payment period increases its profitability. Firms will be able to increase their profitability by increasing the maturity of their short-term debt or by structuring them at affordable costs.
The last variable analyzed within the scope of the research is the LNNDS variable that expresses the cash conversion time. In the application carried out within the scope of the research, there is a significant and positive relationship between cash conversion time and profitability in the technology sector. In this case, the increase in the cash conversion period of the firms will cause an increase in the return on assets.
3.2. HYPOTHESIS TEST RESULTS
The basic hypothesis of the model established within the scope of the research is that the decrease of ATS and STS will increase the active profitability; on the other hand, the increase in KVBÖS and NDS variables will increase the asset profitability. When the findings of the research are examined, it can be seen that the evidence confirms the hypotheses.
3.3. DISCUSSING the FINDINGS with the LITERATURE
When the literature examining the relationship between cash conversion time and profitability is examined, studies that find a positive relationship between cash conversion cycle and profitability (Aytekin & Güler, 2014; Topaloğlu & Nur, 2016; Zakari & Saidu, 2016); on the other hand, some studies find negative relationships between cash conversion cycle and profitability (Garanina and Petrova, 2015; Chang, 2018; Şahin and Vergili, 2019). In the empirical analysis made within the scope of this study, there is evidence that there exists a positive relationship between cash conversion cycle and profitability.
4. CONCLUSION, RECOMMENDATION AND LIMITATIONS
4.1. RESULTS of the ARTICLE
Firms should be able to manage their working capital elements effectively so that they can continue their life cycle in whatever sector they operate. In particular, the short-term borrowing rate is the highest rate of long-term debt in developing countries such as Turkey, which increases the importance of working capital elements. In this context, the relationship between the cash conversion cycles and profitability of companies traded in the BIST Technology Index (XUTEK) between 2010-2019 was analyzed using multiple linear regression models. In the analysis conducted during the study, traded technology companies in the stock market in Turkey had positive and significant relationship between profitability and cash conversion cycle.
4.2. SUGGESTIONS BASED on RESULTS
It is considered that the profitability of the company may increase as it is evaluated that it is possible to increase the cash conversion cycles of the companies by increasing their sales. In this context, companies should focus on activities that will increase their cash conversion activities.
4.3. LIMITATIONS of the ARTICLE
This study was carried out using financial data of technology companies that traded on the exchange in Turkey. The study can be re-expanded for various sectors. It should also be noted that the financial data of companies not listed on the stock exchange will differentiate the results of their analysis.
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