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ch as possible. The cash conversion cycle primarily focuses on the number of days funds are tied up in receivables, inventories and payables. It could have a negative relationship with profitability when the firm tries to shorten their cash conversion cycle period in such a way that by reducing average age of inventory a firm could face the situation of stock out, by trying to reduce average collection period they could lose their good creditors and by delaying payments a firm could lose their reputation. So, the purpose of this study is to find the optimal relationship between the cash conversion cycle and profitability and also the relationship between cash conversion cycle and the size of firm.

Problem Statement The statement of the problem to be analyzed is:

Are the firm size and profitability affected by the cash conversion cycle time period?

Purpose of the Study

There are many researches regarding working capital management and its impact on the profitability of firms but very few researches have been conducted in Pakistan regarding working capital management and still a little is found regarding the cash conversion cycle relationship with the firm size and profitability. So the purpose of this study is to analyze the impact of cash conversion cycle on the profitability as well as on the size of the firms from four industrial sectors of Pakistan. The primary objective of the study is to examine the relationship between:

the length of the CCC and the size of the firms, and

the length of the CCC and profitability of the firms.

The study concentrates on anticipating the consequences of cash conversion cycle in terms of the size and profitability of Pakistani sectors (Automobile and parts, Cement, Chemical and Food producers). Section three provides literature review about the CCC. Section four presents research methodology and design of the study. Section five analyzes findings of the study, and the sixth section provides the concluding remarks of study.

3. Literature Review

Liquidity management is best if based on the principle of collecting cash from accounts receivables as early as possible and delaying the payments of current obligations as much as possible. When a business is not able to manage its liquidity position it will face difficulty in paying its short term debts and therefore the business move towards external financing to clear its short term debts. Management of working capital was found to have a significant impact on both the profitability and liquidity in previous studies in the context of different countries (Uyar, 2009). Uyar, (2009) examined the sample of 166 corporations from seven industries of merchandising and manufacturing sector listed in Istanbul Stock Exchange and concluded that the larger the firm size, the shorter the CCC or the smaller the firm size, the longer the CCC and the firms with shorter CCC are more likely to be more profitable than the firms with longer CCC.

It can be safely argued that every firm whether micro, small of large, must maintain and ensure an efficient cash management record in order to get maximum return on its highly precious capital invested in the business. Conversely, a poor cash management may well land the firm into troubles as it couldn't be able to pay its current obligations on time and eventually the firm may have to fa