Cash Conversion Cycle and Profitability: Empirical Evidence from Ghana’s Energy Sector

This study investigates the impact of the Cash Conversion Cycle (CCC) on the profitability of energy sector companies in Ghana. Using data from four (4) firms spanning 2014 to 2022, the study employed descriptive statistics, correlation analysis, and regression techniques to explore the relationship between CCC components – Days Receivable Outstanding (DRO), Days Inventory Outstanding (DIO), and Days Payable Outstanding (DPO) – and key profitability metrics including Return on Assets (ROA) and Return on Equity (ROE). The findings revealed that a longer CCC negatively correlates with profitability while DIO and DRO positively influenced ROA. Extended payment periods were found to detract from both ROA and ROE. These findings underline the importance of optimizing CCC to enhance financial performance in Ghana’s energy sector. This study contributes to the existing body of literature by providing empirical evidence on the financial performance of energy sector companies, particularly in the context of working capital management. It underscores the critical relationships between the Cash Conversion Cycle and profitability metrics such as ROA and ROE. Moreover, the findings offer actionable recommendations that can assist firms in enhancing their financial performance, thus bridging the gap between theory and practice in financial management within the energy sector.