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2014•RePEc: Research Papers in EconomicsOpen access

The Analysis of Company Liquidity A Using Cash Conversion Cycle Application: Evidence from Taiwan

Lin Li-Hua, Szu-Hsien Lin, Yi-min Lin, Chun-Fan You

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Abstract

It is important to determine whether firms realize assets within a short period to settle liabilities when the debts are due. Most common indicators used to measure liquidity are the current and quick ratios. However, the cash conversion cycle period (CCC) may be a better approach. This study chooses two Taiwan companies in food industries: a listed company (Uni-President) and a delisted company (Tsin Tsin) to compare performance based on liquidity indicators. We examine financial data of the two companies from 1996 to 2005 (Tsin Tsin was delisted in 2006), to calculate their current ratio, quick ratio and cash conversion cycles. The research results show that CCC indicators better reflect the company's actual short term debt-paying ability and liquidity.

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What this paper is about

It is important to determine whether firms realize assets within a short period to settle liabilities when the debts are due. Most common indicators used to measure liquidity are the current and quick ratios. However, the cash conversion cycle period (CCC) may be a better approach. This study chooses two Taiwan companies in food industries: a listed company (Uni-President) and a delisted company (Tsin Tsin) to compare performance based on liquidity indicators. We examine financial data of the two companies from 1996 to 2005 (Tsin Tsin was delisted in 2006), to calculate their current ratio, quick ratio and cash conversion cycles. The research results show that CCC indicators better reflect the company's actual short term debt-paying ability and liquidity.

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Available abstract

It is important to determine whether firms realize assets within a short period to settle liabilities when the debts are due. Most common indicators used to measure liquidity are the current and quick ratios. However, the cash conversion cycle period (CCC) may be a better approach. This study chooses two Taiwan companies in food industries: a listed company (Uni-President) and a delisted company (Tsin Tsin) to compare performance based on liquidity indicators. We examine financial data of the two companies from 1996 to 2005 (Tsin Tsin was delisted in 2006), to calculate their current ratio, quick ratio and cash conversion cycles. The research results show that CCC indicators better reflect the company's actual short term debt-paying ability and liquidity.

Key concepts: Market liquidity, Cash, Business, Cash conversion cycle, Financial system, Cash management, Finance

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