BEYONG MANAGING CASH GAP: CONSTRUCTION COMPANIES IN MALAYSIA
Keywords:
Cash conversion cycle, Profitability, Firm size, Construction industryAbstract
A well-managed cash flow is important to enable the delivery of a succesful project within construction industry. Cash gap or cash conversion cycle is used as a dynamic measure of working capital management whereby to reach optimal working capital, managers should control the trade-off between profitability and liquidity. This study empirically examines the relationship between cash conversion cycle and firm profitability and firm size respectively, on a sample of construction companies listed on Bursa Malaysia covering the period 2005 - 2009. The results indicate that there is a negative correlation between cash conversion cycle and the profitability and the size of the construction fims respectively. This means that by shortening the cash conversion cycle, construction industry in Malaysia may increase their profits. Furthermore, these findings show that smaller construction firms tend to have larger cash gap or cash conversion cycle and suggest that smaller firms should looks ways to shorten their cash gap.
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