Grzegorz Michalski

Value-Based Working Capital Management Determining Liquid Asset Levels in Entrepreneurial Environments

Scientific aim of the monograph is to present the essence of financial liquidity management under specific conditions, faced by enterprises with risk and uncertainty. Enterprises differ one from another in risk sensitivity. In this monograph the research hypothesis is the claim that more risk sensitive enterprises are so different from less risk sensitive, that different approach to managing their working capital and resulting from that managing corporate liquidity is reasonable. The monograph discusses the behavior of enterprises and the relationships between them and other actors in the market, occurring in the management process under the conditions of limited resources. 

Value Maximizing Corporate Current Assets and Cash Management in Relation to Risk Sensitivity: Polish Firms Case

The paper reports the way of working Financial Liquidity Investment Efficiency Model (FLIEM). It’s an author proposed approach to predicts the most accurate from firm maximization point of view cash management and current assets management policy. The novelty of the proposed approach is linked with including the idea of risk sensitivity into model. Current assets and cash in enterprise are maintained for risk reduction purposes. The basic financial purpose of an enterprise is maximization of its value. Cash and current assets management should also contribute to realization of this fundamental aim. The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This paper discuss the consequences that can result from operating risk that is related to cash and current assets management policy. An increase in the level of current assets in a firm increases both net working capital requirements and the costs of holding and managing working capital. Both of these decrease the value of the firm. But not always it works in the same way, it depends on risk sensitivity. Collected data shows how the Polish firms liquidity management model works in emerging markets reality. In the paper the relation between liquid levels and risk sensitivity is illustrated by empirical data from Polish firms.

Full operating cycle influence on the food and beverages processing firms characteristics.

Th e aim of the study is to determine the rules governing the modern cash management in food and beverages processing enterprises with a full operating cycle with a particular emphasis on environmental conditions infl uencing enterprises. Having a full operating cycle is defi ned as a situation in which the small or medium enterprise has a stock of materials or raw materials, which it then as a result of the technological process converts into the fi nished products, off ers them for sale through both cash sales and sales on the basis of the use of trade credit receivables. Used in this defi nition, full operating cycle consists of the conversion of inventories (including the time required to collect the materials and/or raw materials, processing them, and the time required storage of the fi nished products before transfer) and the full period of the collection of receivables. Research hypothesis is the belief that observed in many companies operating in industries using the full operating cycle, assessed by investigators as excessive cash reserves, are dependent on factors that give to describe the relationship between risk and uncertainty and the expected and realized under the conditions of risk and uncertainty in the value added generated by enterprises with a full operating cycle.

A Portfolio Management Approach in Accounts Receivable Management

A Portfolio Management Approach in Accounts Receivable Management The basic financial purpose of an enterprise is the maximization of its value. Trade credit management should also contribute to the realization of this fundamental aim. Many of the current asset management models that are found in financial management literature assume book profit maximization as the basic financial purpose. These book profit-based models could be lacking in what relates to another aim (i.e., maximization of enterprise value). The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences that can result from an operating risk that is related to purchasers using payment postponement for goods and/or services. The present article offers a method that uses portfolio management theory to determine the level of accounts receivable in a firm. An increase in the level of accounts receivables in a firm increases both net working capital and the costs of holding and managing accounts receivables. Both of these decrease the value of the firm, but a liberal policy in accounts receivable coupled with the portfolio management approach could increase the value. Efforts to assign ways to manage these risks were also undertaken; among them, special attention was paid to adapting assumptions from portfolio theory as well as gauging the potential effect on the firm value.

Influence of the Post-Crisis Situation on Cost of Capital and Intrinsic Liquidity Value in Non-Profit Organizations

Cash maintained in nonprofit organizations is not a source of any interest and although the close to cash assesses together with credit lines available for enterprise are connected with resigning from realization of the part of incomes or costs, firms decide to maintain some liquidity reserves. Not only this, resulting from transactional needs, but also from precautional and speculative reasons. Investment in liquid reserves resulting from speculative demand for money may be assessed by usage of capital budgeting methods like: Net Present Value (NPV) or Internal Rate of Return (IRR) or as a call option. In the research paper, each of these aspects of liquidity was taken into consideration and presented from nonprofit perspective. Nonprofit liquidity value determination may often significantly contribute to the solution of working capital management problems in these organizations.

Crisis Caused Changes in Intrinsic Liquidity Value in Non-Profit Institutions

Liquid assets which non-profit institutions hold are not a source of any special interests and although the close to cash assets together with credit lines available for non-profit institution are connected with resigning from realizing a part of income or costs, non-profit institutions decide to hold some liquidity reserves. This results not only from transactional needs, but also from precautional and speculative reasons. Investment in liquid reserves resulting from speculative demand for money may be assessed by usage of capital budgeting methods. In the paper, each of these aspects of liquidity was taken into consideration and presented from non-profit perspective. Non-profit liquidity value determination may often significantly contribute to the solution of working capital management problems in these institutions.

Relation Between Cash Levels and Debt in Small and Medium Wood and Furniture Industry Enterprises with Full Operating Cycle

Abstract Cash levels in firm are an real option instrument similar to financial option of American type. They can serve as hedging against risk instrument. Inside debt is a source of financial risk. The debt is higher the risk is higher. We expect that inside debt levels should be in correspondence with cash levels. In case of firms without full operating cycle, level of operational risk is smaller than in forms with full operating cycle and levels of cash plays much more the role of the buffer that hedge against the operational risk. To present and illustrating the ideas of the paper small and medium wood industry enterprises with full operating cycle data is used. The main objective of the research is to verify a model describing the management of the cash levels in small and medium businesses in relation to debt levels. The model describing debt levels in relation to cash management in small or medium enterprises is useful to understand the relationships that occur in the course of making decisions related to the management of operational risk arising from the implementation of the operating cycle of the small enterprise.

Firm Value and Net Current Assets Investments

Maximization of wealth of his owners is the basic financial aim in management of an enterprise. Decisions in net current assets investments should contribute to realization of this aim. Article presents the discussion about relations between firms net current assets (working capital) investment policy and firms value.

Understanding and Measuring Financial Liquidity Levels

This chapter presents a definition of financial liquidity and liquidity-level measurements. This chapter contains four subchapters that address the specific role of short-term financial decisions, a classification of definitions of financial liquidity, sources of information about liquidity level, and liquidity-level measurements (Lazaridis and Tryfonidis 2006; Long, Malitz, and Ravid 1993; Kieschnick, Laplante, and Moussawi 2009).

Intrinsic and External Values of Liquidity and Optimization

This chapter discusses the relationship between firm value and business risk sensitivity. The chapter starts with a presentation of intrinsic liquidity value and firm reactions to market liquidity value. This is the basis for target liquidity level in the enterprise. Liquid assets are the main part of working capital assets, so the next part of the chapter focuses on working capital investment strategies and strategies of financing such investments in working capital in the context of firm value creation. The chapter concludes that, from a firm-value-creation point of view, more risk-sensitive entities should use flexible-conservative strategies, while less risk-sensitive entities have the freedom to use restrictive-aggressive strategies. In the context of a crisis, this is the clear answer and explanation for higher levels of working capital investments observed empirically during and after a crisis.