The purpose of this study was to compare the effectiveness of the current ratio and the cash conversion cycle in evaluating working capital cash flows from a diagnostic and a predictive aspect.The author analyzed two case studies. Each company was reviewed over a five-year period. For each company the writer calculated the annual current ratio and the cash conversion cycle and examined the trends over the five-year periods under review.Results of these analyses indicated that the cash conversion cycle was more effective than the current ratio in diagnosing the health of each company’s working capital cash flows. The cash conversion cycle also signaled a change in liquidity earlier than the current ratio, suggesting that the former had more effective predictive capabilities than the latter. The central implication of these findings is that the cash conversion cycle might be a more useful diagnostic and predictive tool than the current ratio in liquidity analysis.The research findings were also consistent with improvement or deterioration in each company’s underlying strategic performance as measured by critical changes in its competitive position at the same point in time as the cash conversion cycle trend shifted.These results suggest that the cash conversion cycle may provide insights into the impact of planned product-market strategy on shareholder value.

Two cases from public health care levels were compared on practises used to manage working capital with two cases from the same levels of health care in private health sector. The objective was to establish whether the practises in public health sector comply with the efficient management of working capital principles and whether it was practically feasible to apply the methods in health care provision. Primary and secondary data was collected. Staffs at an operational and administrative level were interviewed at both the primary and the Secondary health care. It was found that principles of working capital practiced in private sector are mostly consistent with working capital theories and could actually be implemented effectively in public health sector without risking patient health. Inefficiencies were identified in the public sector at both an operational and administrative level especially at a secondary health care level. Finally the study makes recommendations on how to address such inefficiencies. / Thesis(MBA)-University of Natal, Durban, 2003.

This master thesis is focused on operating working capital and its implication towards corporate performance in the retail industry in a relevant business framework that takes into account structural changes in the industry. Our results suggest that there is a negative relationship between cash conversion cycle and corporate performance. Therefore, the management of retail companies should focus on shortening the cash conversion cycle to create value. However, in the apparel retail industry, companies with exceptionally long cash conversion cycles are better off keeping working capital investments high as those companies generate on the WC higher profitability than are the opportunity costs for this allocated capital. Finally, we have not found enough evidence to conclude that investment strategies based on the cash conversion cycle are able to generate alpha. However, there seems to be a sign of persistence for value-weighted portfolios. JEL Classification G31, G32 Keywords Working capital, Working capital management, Cash Conversion Cycle, Retail Author's e-mail michael.dibon@gmail.com Supervisor's e-mail ales.cornanic@gmail.com

With the financial crisis, many firms suffered from liquidity shortages and needed to quickly change their way of working to release capital from the operations. Scholars argue that firms should handle immediate crisis with short-term measures first, and then change the underlying organizational routines to prevent recurrence. The management of working capital has received increased attention amongst corporate managers as a result of the crisis, whereby it is interesting to understand how firms can reduce their working capital in a sustainable way. By using the problem-finding and problem-solving approach, this study explores how successful firms have found and solved problems to make them sustainable. To answer the research question a multiple-case study is performed, where five firms are explored through interviews with key respondents. The study indicates that urgency is the main driver for both introducing and increasing the focus on working capital management. Different strategies for obtaining sustainable working capital management are found, where focus and commitment from the top management is suggested to be the glue that makes it last. It is furthermore suggested that managers have two main tools for creating and sustaining desired routines and practices; communication and control.

The main purpose of this diploma thesis is a creation and evaluation of results of the deep analysis of REMAK a.s. Value estimation is determined for shareholders selling a company or for potential buyers. Specific situation in property and capital structure had required a in-depth analysis of working capital and recommended practices, that may help the company to improve their financial results. In diploma thesis were used different practices and methods such as strategic analysis, financial analysis with emphasis on working capital, than financial plan extracted from value generators and final evaluation of company by discounted cash flow methods.

Well-managed working capital plays an important role in running a sound and successful business as it has a direct influence on liquidity and profitability. Working capital management (WCM) has recently received an increased focus from businesses and been regarded as a key managerial intervention to maintain solvency, especially during the global financial crisis when external financing was less available (PwC, 2012). This thesis contains a comprehensive analysis of the determinants and consequences of WCM. For the determinants of WCM, the results suggest that the nature of a firm’s WCM is determined by a combination of firm characteristics, economic condition, and country-level variables. Sources of financing, firm size, and levels of profitability and investment in long-term assets play a vital role in the management of working capital. The financial downturn has also put increased pressure on firms to operate with a lower level of working capital. In addition, country-level variables (i.e., legal environment and culture) have a significant influence on determining a firm’s WCM as well as its determinants. For the consequences of WCM, the findings highlight the importance of higher efficiency in WCM in terms of its potential contribution in enhancing profitability. In particular, firms operating with lower accounts receivable, inventory, and accounts payable periods are associated with higher profitability. Firms can also enhance their profitability further by ensuring a proper “fit” among these components of working capital. Finally, achieving higher efficiency in inventory management can be a source of profitability improvements during the financial crisis. Overall, the thesis contributes to the accounting and finance literature in two distinct ways: research design and new findings. A more extensive data set (in terms of countries coverage and time frame), new estimation technique (i.e., dynamic panel generalised method of moments (GMM) estimation to produce more consistent and reliable results), and substantive robustness tests (conspicuous by their absence in prior studies) were applied and result in several new empirical findings. First, a firm’s WCM is influenced not only by internal factors but also external factors such as country setting, legal environment and culture. Second, a comprehensive measure of WCM (i.e., cash conversion cycle (CCC)) does not represent a useful surrogate for the effects of WCM on corporate profitability. Instead, an examination of the individual components of CCC gives more pronounced and valid results. Third, by managing working capital correctly, firms can enhance their profitability even further, at different levels, and through different components of profitability (including profit margin and asset productivity).

<p>This study investigates the effect of company characteristics on the working capital management. We employed quantitative method to examine the relationship between company characteristics and the cash conversion cycle as a measure of working capital management in Swedish listed companies. The company characteristics include profitability, operating cash flow, company size, sale growth, current ratio and debt ratio. The sample consists of 40 companies in the large cap investment segment listed on NASDAQ OMX Stockholm Exchange. Financial data are extracted from companies’ annual reports of year 2007 and 2008 in order to calculate financial ratios used in the study.</p><p> </p><p>Using regression analysis, our results indicate that profitability, operating cash flow, company size and sale growth affect the company’s working capital management. First, we find that there is a significant positive association between profitability and the cash conversion cycle. Second, we find that the cash conversion cycle have significant negative relationship with operating cash flow, company size and sale growth. Further, we examined the industry effect and find significant positive relations with the cash conversion cycle in four industry classifications as follows: materials, industrials, health care and information technology.</p>

This study investigates the effect of company characteristics on the working capital management. We employed quantitative method to examine the relationship between company characteristics and the cash conversion cycle as a measure of working capital management in Swedish listed companies. The company characteristics include profitability, operating cash flow, company size, sale growth, current ratio and debt ratio. The sample consists of 40 companies in the large cap investment segment listed on NASDAQ OMX Stockholm Exchange. Financial data are extracted from companies’ annual reports of year 2007 and 2008 in order to calculate financial ratios used in the study.   Using regression analysis, our results indicate that profitability, operating cash flow, company size and sale growth affect the company’s working capital management. First, we find that there is a significant positive association between profitability and the cash conversion cycle. Second, we find that the cash conversion cycle have significant negative relationship with operating cash flow, company size and sale growth. Further, we examined the industry effect and find significant positive relations with the cash conversion cycle in four industry classifications as follows: materials, industrials, health care and information technology.

Firms that face seasonal demand account for an important fraction of the U.S. economy. However, there is surprisingly little evidence on these firms' financing decisions. Yet, studying these decisions provides a natural setting to shed light on the types of capital (i.e. cash or debt) that firms use to manage short-term financing needs. Using seasonal firms as a setting to examine this issue, I show that seasonal financing needs are met with debt with low exposure to information asymmetry, such as short-term debt and trade credit. I further show that cash reserves, which have high carrying costs and can at time lead to agency problems, are not used for seasonal financing needs. Further, as financial flexibility theory would predict, I document that seasonal firms maintain more conservative financial policies to increase the ability to use debt for short-term financing needs. Specifically, seasonal firms are less levered and have long-term debt with a longer average maturity. Further, seasonal firms adjust toward leverage targets slower during fiscal quarters when debt is used for short-term financing. Overall, my findings indicate that firms minimize costs associated with short-term financing needs by using debt with low issuance costs and the use of this debt impacts the overall capital structure of the firm.

The challenge to virtually all businesses is to ensure viability in increasingly changing operating environments. This challenge becomes more pronounced when the operating environment is one that rapidly deteriorates to a level where survival becomes the focal point. A hyperinflationary environment is one such environment which renders some common business processes and models death traps which can lead to insolvency. Under hyperinflationary environments, working capital management becomes of paramount importance to the survival of business operations. This dissertation attempts to highlight the key characteristics of a hyperinflationary environment which, if not closely managed, can lead to the demise of a business no matter how good its strategic plans or technological assets may be. In order to highlight these key elements, this dissertation covers a review of hyperinflation aspects and their impact on working capital management components. This impact is further analysed through extraction of financial performances of various companies to establish validity of these aspects and how best they can be managed. In addition, a survey is conducted through the administration of a questionnaire to establish the impact on the various working capital components. This dissertation ends by suggesting an adjustment to the working capital management model to suit business operations in hyperinflationary environments. The result is not an attempt to create new models or theories but in essence, a confirmation of the need for flexible management that timeously adapts to the changing environment. / Thesis (MBA)-University of KwaZlu Natal, 2006.