Impact of Cash Conversion Cycle on the Profitability of SMEs in Tanzania

The purpose of this article is to examine the relationship between the length of the Cash Conversion Cycle (CCC) and the Small and Medium Enterprises (SMEs) profitability. A trend analysis of cash conversion cycle of 38 SMEs and their gross operating profit has been fluctuating with higher standard deviation and variance over a period of 2006 to 2011 showing signs of association. This study employs Regression analysis to determine the impact of cash conversion cycle over gross operating profit taking current ratio, size of the firm, financial debt ratio as control variables. The results indicate that there is a significant negative linear relationship between cash conversion cycle and profitability. The relationship between two control variables viz; current ratio, financial debt ratio and gross operating profit indicate the expected negative relationship whereas the firm size indicate unexpected positive relationship. This may be due to managerial failure.