engleski

What is the coherence between the cash gap and liquidity ratios? - the case of Croatian manufacturing industry

Manufacturing industry is a significant industry in the Republic of Croatia and it represents a significant share in gross domestic product. Depending on the type of production and the output of the production cycle, the production process can vary from several months to over a year. Due to the duration of the production process, cash conversion cycle can fluctuate considerably, which means that the availability of cash funds differs among companies, as well as their cash funds needs. Cash gap shows the difference in the number of days from the purchase of inputs necessary for the realization of the production process and number of days needed to collect trade receivables from the sales of finished products. Longer cash gap means that more of the company’s funds are tied up in the components of working capital, respectively, in inventories and in trade receivables. Greater part of the money tied up in inventory and accounts receivable can lead to problems with liquidity and subsequently can lead to insolvency. The liquidity of the company shows the availability of company to settle its liabilities. In order to determine the relationship between the cash gap and the liquidity of the company, large and medium- sized companies in the manufacturing industry in the Republic of Croatia is analyzed. Cash gap is calculated in a way that the from the sum of the number of days the cash is in inventories and number of days to collect receivables, the number of days to settle payables will be deducted. Quick ratio and current ratio are used as indicators of liquidity. The research is conducted for the period from 2010 to 2015, and the research results show that there is a medium strong positive correlation between cash gap and liquidity rations in the medium-sized and large sized companies from the manufacturing industry in Croatia for the period observed, but this correlation is not statistically significant.

cash gap, quick ratio, current ratio, manufacturing industry, Republic of Croatia

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