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bles and resultantly these policies have much to do with the firm's profitability. The firms have to make a very appropriate choice between the CCC length and offering discounts to their customer. On the other side of the credit payments, the firms have to ensure their adequate solvency as well as to delay the time period for the payment towards their creditors and the suppliers for the items and materials purchased on credit.

Liquidity management, which refers to management of current assets and liabilities, plays an important role in the successful management of a firm. If a firm does not manage its liquidity position well, its current assets may not meet its current liabilities. Hence, the firm may have to find external financing due to having difficulty in paying its short term debts. Unfortunately, every firm is not able to find external financing easily, especially as it is in small firm case. In addition, although firms are able find external financing, the cost of borrowing may be expensive, resulting in poorer bottom line. Liquidity of firms can be gauged by cash conversion cycle (CCC) measuring the time lag between cash payments for purchases and collection of accounts and debts receivables from clients. The working capital ratios such as current ratio and quick ratio are useful liquidity indicators of firms; they focus on static balance sheet values (Moss and Stine, 1993) whereas, CCC is a dynamic measure of ongoing liquidity management, as it considers related elements of both balance sheet and income statement along the time dimension (Jose et al., 1996). Measuring an individual firm's CCC length is vital for its liquidity analysis and improvements, whereas the industry benchmarks are vital for comparative evaluation of its overall CCC performance and explore the viable opportunities for growth in the related sector(Hutchison et al.,2007). Cash or finance is really considered the lifeblood of business and a proper cash management and the firm's liquid resources is vital to the firm's profitability, survival and the ultimate growth. One can never expect a smooth working of any business unit unless and until its precious resources are used in an optimal way. The firms which face the WCM management problems and liquidity shortages always find it extremely difficult to cope with the issues relating to their survival and eventual growth. So investigating the optimal combination of the components of WCM is of paramount academic as well as practical importance, and that especially in the context of the developing countries and the small and medium sized enterprises ( SMEs). The meager resources on the disposal of the SMEs compel them to seek external financial assistance and that too is not always available in the required magnitude as the financial markets in the developing countries are not well developed and the lenders as well as the financial institutions are usually found hesitant to finance their needs. So the topic of liquidity management is of great importance in the context of the developing countries like Pakistan.

2. Defining Cash Conversion Cycle

The CCC measure is basically related to working capital management (Keown et al., 2003; and Bodie and Merton, 2000). It is used as a comprehensive measure of working capital as it shows the time lag between expenditure for the purchases of raw materials and the collection of sales of finished goods (Padachi, 2006).