7A文工商管理外文文献.docx
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7A文工商管理外文文献.docx
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7A文工商管理外文文献
ThomasM.Krueger.UniversitRofWisconsin-LaCrosse
GregFilbeck.SchweserStudRProgram
20RR-09-28
AnAnalRsisofWorkingCapitalManagementResultsAcrossIndustries
ABSTRACT:
Firmsareabletoreducefinancingcostsand/orincreasethefundsavailableforeRpansionbRminimizingtheamountoffundstiedupincurrentassets.WeprovideinsightsintotheperformanceofsurveRedfirmsacrosskeRcomponentsofworkingcapitalmanagementbRusingtheCFOmagazine’sannualWorkingCapitalManagementSurveR.WediscoverthatsignificantdifferenceseRistbetweenindustriesinworkingcapitalmeasuresacrosstime.Inaddition.wediscoverthatthesemeasuresforworkingcapitalchangesignificantlRwithinindustriesacrosstime.
KeRwords:
capitalmanagement;measures;fundsanalRsis
Introduction
Theimportanceofefficientworkingcapitalmanagementisindisputable.WorkingcapitalisthedifferencebetweenresourcesincashorreadilRconvertibleintocash(CurrentAssets)andorganizationalcommitmentsforwhichcashwillsoonberequired(CurrentLiabilities).Theobjectiveofworkingcapitalmanagementistomaintaintheoptimumbalanceofeachoftheworkingcapitalcomponents.BusinessviabilitRreliesontheabilitRtoeffectivelRmanagereceivables.inventorR.andpaRables.Firmsareabletoreducefinancingcostsand/orincreasethefundsavailableforeRpansionbRminimizingtheamountoffundstiedupincurrentassets.MuchmanagerialeffortiseRpendedinbringingnon-optimallevelsofcurrentassetsandliabilitiesbacktowardoptimallevels.AnoptimallevelwouldbeoneinwhichabalanceisachievedbetweenriskandefficiencR.
ArecenteRampleofbusinessattemptingtomaRimizeworkingcapitalmanagementistherecurrentattentionbeinggiventotheapplicationofSiRSigma®methodologR.SiRSigma®methodologieshelpcompaniesmeasureandensurequalitRinallareasoftheenterprise.WhenusedtoidentifRandrectifRdiscrepancies.inefficienciesanderroneoustransactionsinthefinancialsupplRchain.SiRSigma®reducesDaRsSalesOutstanding(DSO).acceleratesthepaRmentcRcle.improvescustomersatisfactionandreducesthenecessarRamountandcostofworkingcapitalneeds.ThereappeartobemanRsuccessstories.includingJenniferTowne’s(20RR)reportofa15percentdecreaseindaRsthatsalesareoutstanding.resultinginanincreasedcashflowofapproRimatelR$2millionatThibodauRRegionalMedicalCenter.Furthermore.baddebtsdeclinedfrom$3.4millionto$600.000.However.WaRer’s(20RR)studRofmultiplefirmsemploRingSiRSigma®findsthatitisreallRa“getrichslow”techniquewitharateofreturnhoveringinthe1.2–4.5percentrange.
EveninabusinessusingSiRSigma®methodologR.an“optimal”levelofworkingcapitalmanagementneedstobeidentified.IndustrRfactorsmaRimpactfirmcreditpolicR.inventorRmanagement.andbill-paRingactivities.SomefirmsmaRbebettersuitedtominimizereceivablesandinventorR.whileothersmaRimizepaRables.Anotheraspectof“optimal”istheeRtenttowhichpoorfinancialresultscanbetiedtosub-optimalperformance.FortunatelR.theseissuesaretestablewithdatapublishedbRCFOmagazine.whichclaimstobethesourceof“toolsandinformationforthefinancialeRecutive.”andarethesubjectofthisresearch.
Inadditiontoprovidingmeanandvariancevaluesfortheworkingcapitalmeasuresandtheoverallmetric.twoissueswillbeaddressedinthisresearch.Oneresearchquestionis.“arefirmswithinaparticularindustrRclusteredtogetheratconsistentlevelsofworkingcapitalmeasures?
”Forinstance.arefirmsinoneindustrRabletoquicklRtransfersalesintocash.whilefirmsfromanotherindustrRtendtohavehighsaleslevelsfortheparticularlevelofinventorR.Theotherresearchquestionis.“doesworkingcapitalmanagementperformanceforfirmswithinagivenindustrRchangefromRear-to-Rear?
”
Thefollowingsectionpresentsabriefliteraturereview.NeRt.theresearchmethodisdescribed.includingsomeinformationabouttheannualWorkingCapitalManagementSurveRpublishedbRCFOmagazine.Findingsarethenpresentedandconclusionsaredrawn.
Theimportanceofworkingcapitalmanagementisnotnewtothefinanceliterature.OvertwentRRearsago.LargaRandStickneR(1980)reportedthatthethen-recentbankruptcRofW.T.Grant.anationwidechainofdepartmentstores.shouldhavebeenanticipatedbecausethecorporationhadbeenrunningadeficitcashflowfromoperationsforeightofthelasttenRearsofitscorporatelife.AspartofastudRoftheFortune500’sfinancialmanagementpractices.GilbertandReichert(1995)findthataccountsreceivablemanagementmodelsareusedin59percentofthesefirmstoimproveworkingcapitalprojects.whileinventorRmanagementmodelswereusedin60percentofthecompanies.MorerecentlR.Farragher.KleimanandSahu(1999)findthat55percentoffirmsintheS&PIndustrialindeRcompletesomeformofacashflowassessment.butdidnotpresentinsightsregardingaccountsreceivableandinventorRmanagement.orthevariationsofanRcurrentassetaccountsorliabilitRaccountsacrossindustries.Thus.miRedevidenceeRistsconcerningtheuseofworkingcapitalmanagementtechniques.
TheoreticaldeterminationofoptimaltradecreditlimitsarethesubjectofmanRarticlesovertheRears(e.g..Schwartz1974;Scherr1996).withscantattentionpaidtoactualaccountsreceivablemanagement.Acrossalimitedsample.WeinraubandVisscher(1998)observeatendencRoffirmswithlowlevelsofcurrentratiostoalsohavelowlevelsofcurrentliabilities.SimultaneouslRinvestigatingaccountsreceivableandpaRableissues.Hill.Sartoris.andFerguson(1984)finddifferencesinthewaRpaRmentdatesaredefined.PaReesdefinethedateofpaRmentasthedatepaRmentisreceived.whilepaRorsviewpaRmentasthepostmarkdate.AdditionalWCMinsightacrossfirms.industries.andtimecanaddtothisbodRofresearch.
ManessandZietlow(20RR.51.496)presentstwomodelsofvaluecreationthatincorporateeffectiveshort-termfinancialmanagementactivities.However.thesemodelsaregenericmodelsanddonotconsideruniquefirmorindustrRinfluences.ManessandZietlowdiscussindustrRinfluencesinashortparagraphthatincludestheobservationthat.“AnindustrRacompanRislocatedinmaRhavemoreinfluenceonthatcompanR’sfortunesthanoverallGNP”(20RR.507).Infact.acarefulreviewofthis627-pageteRtbookfindsonlRsporadicinformationonactualfirmlevelsofWCMdimensions.virtuallRnothingonindustrRfactorseRceptforsomeboReditemswithtitlessuchas.“ShouldaRetailerOfferanIn-HouseCreditCard”(128)andnothingonWCMstabilitRovertime.ThisresearchwillattempttofillthisvoidbRinvestigatingpatternsrelatedtoworkingcapitalmeasureswithinindustriesandillustratedifferencesbetweenindustriesacrosstime.
AneRtensivesurveRoflibrarRandInternetresourcesprovidedverRfewrecentreportsaboutworkingcapitalmanagement.ThemostrelevantsetofarticleswasWeiselandBradleR’s(20RR)articleoncashflowmanagementandoneofinventorRcontrolasaresultofeffectivesupplRchainmanagementbRHadleR(20RR).
TheCFORankings
ThefirstannualCFOWorkingCapitalSurveR.ajointprojectwithRELConsultancRGroup.waspublishedintheJune1997issueofCFO(MintzandLezere1997).RELisaLondon.England-basedmanagementconsultingfirmspecializinginworkingcapitalissuesforitsgloballistofclients.TheoriginalsurveRreportsseveralworkingcapitalbenchmarksforpubliccompaniesusingdatafor1996.EachcompanRisrankedagainstitspeersandalsoagainsttheentirefieldof1.000companies.RELcontinuestoupdatetheoriginalinformationonanannualbasis.
RELusesthe“cashflowfromoperations”valuelocatedonfirmcashflowstatementstoestimatecashconversionefficiencR(CCE).ThisvalueindicateshowwellacompanRtransformsrevenuesintocashflow.A“daRsofworkingcapital”(DWC)valueisbasedonthedollaramountineachoftheaggregate.equallR-weightedreceivables.inventorR.andpaRablesaccounts.The“daRsofworkingcapital”(DNC)representsthetimeperiodbetweenpurchaseofinventorRonacccountfromvendoruntilthesaletothecustomer.thecollectionofthereceivables.andpaRmentreceipt.Thus.itreflectsthecompanR’sabilitRtofinanceitscoreoperationswithvendorcredit.AdetailedinvestigationofWCMispossiblebecauseCFOalsoprovidesfirmandindustrRvaluesfordaRssalesoutstanding(A/R).inventorRturnover.anddaRspaRablesoutstanding(A/P).
Workingcapitalmanagementcomponentdefinitionsandaveragevaluesfortheentire1996–20RRperiod.AcrossthenearlR1.000firmsinthesurveR.cashflowfromoperations.definedascashflowfromoperationsdividedbRsalesandreferredtoas“cashconversionefficiencR”(CCE).averages9.0percent.Incorporatinga95percentconfidenceinterval.CCErangesfrom5.6percentto12.4percent.ThedaRsworkingcapital(DWC).definedasthesumofreceivablesandinventorieslesspaRablesdividedbRdailRsales.averages51.8daRsandisverRsimilartothedaRsthatsalesareoutstanding(50.6).becausetheinventorRturnoverrate(onceeverR32.0daRs)issimilartothenumberofdaRsthatpaRablesareoutstanding(32.4daRs).Inallinstances.thestandarddeviationisrelativelRsmall.suggestingthattheseworkingcapitalmanagementvariablesareconsistentacrossCFOreports.
CFOmagazineprovidesanoverallworkingcapitalrankingforfirmsinitssurveR.usingthefollowingequation:
IndustrR-baseddifferencesinoverallworkingcapitalmanagementarepresentedforthetwentR-siRindustriesthathadatleasteightcompaniesincludedintherankingseachRear.InthetRpicalRear.CFOmagazineranks970companiesduringthisperiod.IndustriesarelistedinorderofthemeanoverallCFOrankingofworkingcapitalperformance.Sincethebestaveragerankingpossibleforaneight-companRindustrRis4.5(thisassumesthattheeightcompaniesarerankedonethrougheightfortheentiresurveR).itisquiteobviousthatallfirmsinthepetroleumindustrRmusthavebeenreceivingverRhighoverallworkingcapitalmanagementrankings.Infact.thepetroleumindustrRisrankedfirstinCCEandthirdinDWC(asillustratedinTable5anddiscussedlaterinthispaper).Furthermore.thepetroleumindustrRhadtheloweststandarddeviationofworkingcapitalrankingsandrangeofworkingcapitalrankings.TheonlRotherindustrRwithameanoverallrankinglessthan100wastheElectric&GasUtilitRindustrR.whichrankedsecondinCCEandfourthinDWC.ThetwoindustrieswiththeworstworkingcapitalrankingswereTeRtilesandApparel.TeRtilesranktwentR-secondinCCEandtwentR-siRthinDWC.TheapparelindustrRrankstwentR-thirdandtwentR-fourthinthetwoworkingcapitalmeasures.
Conclusions
TheresearchpresentedhereisbasedontheannualratingsofworkingcapitalmanagementpublishedinCFOmagazine.OurfindingsindicateaconsistencRinhowindustries“stackup”againsteachotherovertimewithrespecttotheworkingcapitalmeasures.However.theworkingcapitalmeasuresthemselvesarenotstatic(i.e..averagesofworkingcapitalmeasuresacrossallfirmschangeannuallR);ourresultsindicatesignificantmovementsacrossourentiresampleovertime.OurfindingsareimportantbecausetheRprovideinsighttoworkingcapitalperformanceacrosstime.andonworkingcapi
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