The Cash Conversion Cycle and Liquidity Analysis of the Food Industry in Greece

Abstract

This study examined the cash conversion cycle (CCC) as a liquidity indicator of the food industry Greek companies and tries to determine its relationship with the current and the quick ratios, with its component variables, and investigates the implications of the CCC in terms of profitability, indebtness and firm size. Therefore, five hypotheses are formed to investigate the contemporary liquidity measure of the CCC.

The data are taken from the major companies in the food and beverage industry of Greece, which is a representative sector of the Greeek industry as a whole and a very crucial industry for the whole economy, with rapid growth and expansion domestically and internationally. The methodology that was followed included regression and correlation analysis, as well as t-tests of two independent sample means.

The results indicated that there is a significant positive relationship between the cash conversion cycle and the traditional liquidity measures of current and quick ratios. The cash conversion cycle was positively related to the return on assets and the net profit margin but had no linear relationship with the leverage ratios. On the other hand, the current and quick ratios had negative relationship with the debt to equity ratio, and a positive one with the times interest earned ratio. Finally, there is no difference between the liquidity ratios of large and small firms.

Keywords: Cash conversion cycle, liquidity, current ratio, quick ratio, profitability, indebtness, Greece

JEL Classification: G39