Modifying the cash conversion cycle: revealing concealed advance payments

Talonpoika, Anna-Maria; Monto, Sari; Pirttilä, Miia; Kärri, Timo

doi:10.1108/ijppm-12-2012-0130

Cited by 31 publications

(19 citation statements)

References 22 publications

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“…Cash conversion cycle (CCC) is one of the most acceptable measuring technique of WCM. Talonpoika et al (2014) has presented a modification in the CCC by taking into consideration the received advance payments only. Three motives for firm's cash holdings are transactional, speculative and precautionary.…”

Section: Background Of Studymentioning

confidence: 99%

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Financial and Operating Working Capital: Unraveling Obscured Portion of Balance Sheet

Saeed

Khan

2020

JBSEE

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ABSTRACT Purpose- The purpose of this study is to provide a new obscured aspect of financial working capital in working capital management, and investigate the association between financial and operating working capital with business performance. This paper also examines the interacting effect of net cash flow on this relationship. The current study introduces a modification in cash conversion cycle (CCC) by taking concealed trade advance payments. Design/methodology/approach- This study employs fixed effect regression model, covering a sample of Automobile sector companies, listed at Pakistan Stock Exchange (PSX) for the period of fourteen years from 2005 to 2018. Secondary data is collected from companies’ financial annual reports, PSX website, and Balance sheet analysis of State Bank of Pakistan (SBP). The study is explanatory and deductive in nature. Financial working capital (FWC) and new measure of operating working capital (OWC) i.e. modified cash conversion cycle (mCCC) is introduced & empirically tested with 252 firm-year observations. Findings- The regression results shows, a convex association between OWC & FWC, with business performance, in dearth of internal cash. However, after taking interacting effect of internal availability of cash, only FWC relation has become concave. The result also shows that mCCC provides a more realistic view of OWC. Research limitations/implications- This study has considered, concealed trade prepayments only, further research could include other components in mCCC. Moreover micro, macro factors and status of the economy such as depression or boom may also affect the results of the research. The findings suggest that managers should separately deal operating & financial working capital. Firms’ performance can be enhanced, if Finance Manager Take account internal cash of the firm. In case of deficiency (sufficiency) of it, he should work to decrease (increase) the investment amount in operating working capital (financial working capital). Overall, the results will be helpful to the financial experts and business practitioner in analyzing, and utilization of their resources. Originality/value- This study adds a new dimension in working capital by separating it into operating and financial working capital. The study also offers insights into the new knowledge of extension in CCC, role of concealed advance payments and internal cash flow, for class teachers and business practitioners. It will also describe the new avenues for further research in this field. Key Words: Financial working capital, Operating working capital, Trade advanced payments and modified cash conversion cycle (mCCC).

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Section: Background Of Studymentioning

confidence: 99%

“…Yritystutkimus (2011) state that trade prepayments are part of the WC. Talonpoika et al (2014) presented a modification in CCC by taking into consideration the received advance payments only. The results shows more efficiency in measuring OWC through this new measure.…”

Section: Measures Of Working Capital Managementmentioning

confidence: 99%

Financial and Operating Working Capital: Unraveling Obscured Portion of Balance Sheet

Saeed

Khan

2020

JBSEE

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“…Operational working capital consists of inventories, accounts receivables and accounts payables while financial working capital includes the net working capital that is not tied into operations, such as cash (Knauer & Wohrmann, 2013). Inventories, accounts payables, such as money to pay suppliers and accounts receivables such as payments received from business partners after sales are the components of operational working capital (Talonpoika, Monto, Pirttila & Karri, 2014). Adequate financing for cash receivables and net of inventory payables are required to maintain proper working capital (Deloof, 2003).…”

Section: Working Capital Managementmentioning

confidence: 99%

Do Corporate Governance Practices Influence Working Capital Management Efficiency? Evidence From Listed Manufacturing Companies in Sri Lanka

Kengatharan¹,

Tissera²

2019

RWE

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The purpose of the study is to investigate the influence of corporate governance practices on working capital management efficiency in the listed companies of the manufacturing sector in Sri Lanka. Board meeting, board size, CEO tenure and size of the audit committee are used as corporate governance practices and the cash conversion cycle is calculated to measure the working capital management efficiency. Sales growth and firm size are considered as control variables to evaluate the influence of corporate governance practices on working capital management efficiency. Relevant data are extracted from the annual reports of 30 listed manufacturing companies for the period from 2013 to 2017. Finally, 150 observations are used for the data analysis. Pearson correlations are executed to determine the relationship between corporate governance practices and working capital management efficiency. OLS regression analysis is performed to determine the explanatory power of the combination of corporate governance practices on the efficiency of working capital management. The correlation analysis shows that board meeting, CEO tenure and firm size have a significant positive relationship with cash conversion cycle. The regression results suggest that board meetings and CEO tenure have a significant positive influence on cash conversion cycle. Generally, the shorter the cash conversion cycle is better for the business, therefore, according to this result the increase in a board meeting and CEO tenure have the considerable decreasing in liquidity position in an organization. Therefore, the outcome of the study may be useful to the top management of the firms and practitioners when they are implementing governance mechanisms in order to enhance the working capital efficiency.

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“…The study [58] included accrued expenses (A/E) in (2) as a separate component into the working capital cycle (usually is a part of A/P). The authors [57,58] state that the working capital cycle describes the main parts of the company's performance associated with financial flows.…”

Section: Working Capital Inventories Ar Apmentioning

confidence: 99%

Working Capital Optimization in Supply Chains

Zenkevich

Ivakina

2018

КФ

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This article is devoted to working capital management and its optimization on an inter-organizational level when supply chain members operate collaboratively. We aim to develop and validate a model of collaborative approach to working capital management in supply chains for cases of constrained liquidity and imposed return requirements using supply chain finance (factoring, reverse factoring and inventory financing). As such, we suggest a tool of working capital optimization using financial terms and cash flows verified on Russian supply chain data. Mathematical modeling is suggested as a method to modify an existing working capital management model on the grounds of collaborative financial cost minimization under industry specific liquidity constraints. These liquidity constraints are constructed in such a way as to eliminate possible violations from companies, because their violation will lead to the inverse relation between liquidity and rate of return. The results of the optimization provide recommended values for cash conversion cycle elementsdays of inventories, days of accounts payable, days of accounts receivable -that guarantee the coordinating effect of collaborative working capital management. Calculation, further optimization and monitoring of cash conversion cycle values sustain effective working capital management on an inter-organizational level while meeting the liquidity and return levels for each company in a chain. The suggested model can be implemented for a day-to-day decision making process by companies oriented to stay competitive in the long run. Besides, the results obtained show the potential for further coordination among the key members of the supply chain in terms of aligning financial, product, and information flows. Despite the fact that the model provides a static solution to the problem of collaborative working capital management, it has potential for the further development of a dynamic algorithm. Future research should seek to investigate the possible imputation options for gained costs reduction values on the grounds of cooperative games with a coalition structure.

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Modifying the cash conversion cycle: revealing concealed advance payments

Cited by 31 publications

References 22 publications

Financial and Operating Working Capital: Unraveling Obscured Portion of Balance Sheet

Financial and Operating Working Capital: Unraveling Obscured Portion of Balance Sheet

Do Corporate Governance Practices Influence Working Capital Management Efficiency? Evidence From Listed Manufacturing Companies in Sri Lanka

Working Capital Optimization in Supply Chains

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