工商管理外文文献.docx

工商管理外文文献.docx

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工商管理外文文献

ThomasM.Krueger.UniversityofWisconsin-LaCrosse

GregFilbeck.SchweserStudyProgram

2009-09-28

AnAnalysisofWorkingCapitalManagementResultsAcrossIndustries

ABSTRACT：

Firmsareabletoreducefinancingcostsand/orincreasethefundsavailableforexpansionbyminimizingtheamountoffundstiedupincurrentassets.WeprovideinsightsintotheperformanceofsurveyedfirmsacrosskeycomponentsofworkingcapitalmanagementbyusingtheCFOmagazine’sannualWorkingCapitalManagementSurvey.Wediscoverthatsignificantdifferencesexistbetweenindustriesinworkingcapitalmeasuresacrosstime.Inaddition.wediscoverthatthesemeasuresforworkingcapitalchangesignificantlywithinindustriesacrosstime.

Keywords:

capitalmanagement;measures;fundsanalysis

Introduction

Theimportanceofefficientworkingcapitalmanagementisindisputable.Workingcapitalisthedifferencebetweenresourcesincashorreadilyconvertibleintocash（CurrentAssets）andorganizationalcommitmentsforwhichcashwillsoonberequired（CurrentLiabilities）.Theobjectiveofworkingcapitalmanagementistomaintaintheoptimumbalanceofeachoftheworkingcapitalcomponents.Businessviabilityreliesontheabilitytoeffectivelymanagereceivables.inventory.andpayables.Firmsareabletoreducefinancingcostsand/orincreasethefundsavailableforexpansionbyminimizingtheamountoffundstiedupincurrentassets.Muchmanagerialeffortisexpendedinbringingnon-optimallevelsofcurrentassetsandliabilitiesbacktowardoptimallevels.Anoptimallevelwouldbeoneinwhichabalanceisachievedbetweenriskandefficiency.

ArecentexampleofbusinessattemptingtomaximizeworkingcapitalmanagementistherecurrentattentionbeinggiventotheapplicationofSixSigma®methodology.SixSigma®methodologieshelpcompaniesmeasureandensurequalityinallareasoftheenterprise.Whenusedtoidentifyandrectifydiscrepancies.inefficienciesanderroneoustransactionsinthefinancialsupplychain.SixSigma®reducesDaysSalesOutstanding（DSO）.acceleratesthepaymentcycle.improvescustomersatisfactionandreducesthenecessaryamountandcostofworkingcapitalneeds.Thereappeartobemanysuccessstories.includingJenniferTowne’s（2002）reportofa15percentdecreaseindaysthatsalesareoutstanding.resultinginanincreasedcashflowofapproximately$2millionatThibodauxRegionalMedicalCenter.Furthermore.baddebtsdeclinedfrom$3.4millionto$600.000.However.Waxer’s（2003）studyofmultiplefirmsemployingSixSigma®findsthatitisreallya“getrichslow”techniquewitharateofreturnhoveringinthe1.2–4.5percentrange.

EveninabusinessusingSixSigma®methodology.an“optimal”levelofworkingcapitalmanagementneedstobeidentified.Industryfactorsmayimpactfirmcreditpolicy.inventorymanagement.andbill-payingactivities.Somefirmsmaybebettersuitedtominimizereceivablesandinventory.whileothersmaximizepayables.Anotheraspectof“optimal”istheextenttowhichpoorfinancialresultscanbetiedtosub-optimalperformance.Fortunately.theseissuesaretestablewithdatapublishedbyCFOmagazine.whichclaimstobethesourceof“toolsandinformationforthefinancialexecutive.”andarethesubjectofthisresearch.

Inadditiontoprovidingmeanandvariancevaluesfortheworkingcapitalmeasuresandtheoverallmetric.twoissueswillbeaddressedinthisresearch.Oneresearchquestionis.“arefirmswithinaparticularindustryclusteredtogetheratconsistentlevelsofworkingcapitalmeasures?

”Forinstance.arefirmsinoneindustryabletoquicklytransfersalesintocash.whilefirmsfromanotherindustrytendtohavehighsaleslevelsfortheparticularlevelofinventory.Theotherresearchquestionis.“doesworkingcapitalmanagementperformanceforfirmswithinagivenindustrychangefromyear-to-year?

”

Thefollowingsectionpresentsabriefliteraturereview.Next.theresearchmethodisdescribed.includingsomeinformationabouttheannualWorkingCapitalManagementSurveypublishedbyCFOmagazine.Findingsarethenpresentedandconclusionsaredrawn.

Theimportanceofworkingcapitalmanagementisnotnewtothefinanceliterature.Overtwentyyearsago.LargayandStickney（1980）reportedthatthethen-recentbankruptcyofW.T.Grant.anationwidechainofdepartmentstores.shouldhavebeenanticipatedbecausethecorporationhadbeenrunningadeficitcashflowfromoperationsforeightofthelasttenyearsofitscorporatelife.AspartofastudyoftheFortune500’sfinancialmanagementpractices.GilbertandReichert（1995）findthataccountsreceivablemanagementmodelsareusedin59percentofthesefirmstoimproveworkingcapitalprojects.whileinventorymanagementmodelswereusedin60percentofthecompanies.Morerecently.Farragher.KleimanandSahu（1999）findthat55percentoffirmsintheS&PIndustrialindexcompletesomeformofacashflowassessment.butdidnotpresentinsightsregardingaccountsreceivableandinventorymanagement.orthevariationsofanycurrentassetaccountsorliabilityaccountsacrossindustries.Thus.mixedevidenceexistsconcerningtheuseofworkingcapitalmanagementtechniques.

Theoreticaldeterminationofoptimaltradecreditlimitsarethesubjectofmanyarticlesovertheyears（e.g..Schwartz1974;Scherr1996）.withscantattentionpaidtoactualaccountsreceivablemanagement.Acrossalimitedsample.WeinraubandVisscher（1998）observeatendencyoffirmswithlowlevelsofcurrentratiostoalsohavelowlevelsofcurrentliabilities.Simultaneouslyinvestigatingaccountsreceivableandpayableissues.Hill.Sartoris.andFerguson（1984）finddifferencesinthewaypaymentdatesaredefined.Payeesdefinethedateofpaymentasthedatepaymentisreceived.whilepayorsviewpaymentasthepostmarkdate.AdditionalWCMinsightacrossfirms.industries.andtimecanaddtothisbodyofresearch.

ManessandZietlow（2002.51.496）presentstwomodelsofvaluecreationthatincorporateeffectiveshort-termfinancialmanagementactivities.However.thesemodelsaregenericmodelsanddonotconsideruniquefirmorindustryinfluences.ManessandZietlowdiscussindustryinfluencesinashortparagraphthatincludestheobservationthat.“Anindustryacompanyislocatedinmayhavemoreinfluenceonthatcompany’sfortunesthanoverallGNP”（2002.507）.Infact.acarefulreviewofthis627-pagetextbookfindsonlysporadicinformationonactualfirmlevelsofWCMdimensions.virtuallynothingonindustryfactorsexceptforsomeboxeditemswithtitlessuchas.“ShouldaRetailerOfferanIn-HouseCreditCard”（128）andnothingonWCMstabilityovertime.Thisresearchwillattempttofillthisvoidbyinvestigatingpatternsrelatedtoworkingcapitalmeasureswithinindustriesandillustratedifferencesbetweenindustriesacrosstime.

AnextensivesurveyoflibraryandInternetresourcesprovidedveryfewrecentreportsaboutworkingcapitalmanagement.ThemostrelevantsetofarticleswasWeiselandBradley’s（2003）articleoncashflowmanagementandoneofinventorycontrolasaresultofeffectivesupplychainmanagementbyHadley（2004）.

TheCFORankings

ThefirstannualCFOWorkingCapitalSurvey.ajointprojectwithRELConsultancyGroup.waspublishedintheJune1997issueofCFO（MintzandLezere1997）.RELisaLondon.England-basedmanagementconsultingfirmspecializinginworkingcapitalissuesforitsgloballistofclients.Theoriginalsurveyreportsseveralworkingcapitalbenchmarksforpubliccompaniesusingdatafor1996.Eachcompanyisrankedagainstitspeersandalsoagainsttheentirefieldof1.000companies.RELcontinuestoupdatetheoriginalinformationonanannualbasis.

RELusesthe“cashflowfromoperations”valuelocatedonfirmcashflowstatementstoestimatecashconversionefficiency（CCE）.Thisvalueindicateshowwellacompanytransformsrevenuesintocashflow.A“daysofworkingcapital”（DWC）valueisbasedonthedollaramountineachoftheaggregate.equally-weightedreceivables.inventory.andpayablesaccounts.The“daysofworkingcapital”（DNC）representsthetimeperiodbetweenpurchaseofinventoryonacccountfromvendoruntilthesaletothecustomer.thecollectionofthereceivables.andpaymentreceipt.Thus.itreflectsthecompany’sabilitytofinanceitscoreoperationswithvendorcredit.AdetailedinvestigationofWCMispossiblebecauseCFOalsoprovidesfirmandindustryvaluesfordayssalesoutstanding（A/R）.inventoryturnover.anddayspayablesoutstanding（A/P）.

Workingcapitalmanagementcomponentdefinitionsandaveragevaluesfortheentire1996–2000period.Acrossthenearly1.000firmsinthesurvey.cashflowfromoperations.definedascashflowfromoperationsdividedbysalesandreferredtoas“cashconversionefficiency”（CCE）.averages9.0percent.Incorporatinga95percentconfidenceinterval.CCErangesfrom5.6percentto12.4percent.Thedaysworkingcapital（DWC）.definedasthesumofreceivablesandinventorieslesspayablesdividedbydailysales.averages51.8daysandisverysimilartothedaysthatsalesareoutstanding（50.6）.becausetheinventoryturnoverrate（onceevery32.0days）issimilartothenumberofdaysthatpayablesareoutstanding（32.4days）.Inallinstances.thestandarddeviationisrelativelysmall.suggestingthattheseworkingcapitalmanagementvariablesareconsistentacrossCFOreports.

CFOmagazineprovidesanoverallworkingcapitalrankingforfirmsinitssurvey.usingthefollowingequation:

Industry-baseddifferencesinoverallworkingcapitalmanagementarepresentedforthetwenty-sixindustriesthathadatleasteightcompaniesincludedintherankingseach