Miia Pirttilä

Advanced model for working capital management: bridging theory and practice

The paper introduces an internal information tool, the advanced cash conversion cycle (ACCC), for controlling the amount and cost of working capital, by refining and extending the concept of the weighted cash conversion cycle. The ACCC model has been developed with a real world value chain case from the pulp and paper industry, and it addresses issues overlooked in the prior model. The ACCC offers visibility through the value chain, elimination of the problem of a negative margin, a more simple calculation of accounts payables compared to the prior model, and new metrics to control working capital in companies.

Improving profitability by managing working capital in the value chain of pulp and paper industry

Working capital management is an essential element in short-term financing and cash flow. Previous studies have also discussed the impact of working capital management on the relative profitability of a company. In this paper, we study the effect of the management of working capital components (inventories, accounts receivable and accounts payable) on profitability in the context of the value chain. The findings suggest that the components of working capital should be managed together to achieve positive effects on profitability. Companies also need to take account of the other companies of the value chain in their management of working capital components.

The investment logics of Finnish industrial maintenance service providers

Finnish industrial companies are today highly dependable on industrial maintenance service providers practising maintenance in industrial companies. Outsourcing has led to an increased demand of maintenance services, and maintenance service providers have made substantial investments to meet the growth. The total investment rate was on average 1.9 in large companies and 6.4 in small- and medium-sized enterprises (SMEs) in 2003–2007. There are major differences in the investment logics of large companies and SMEs. The target of large companies is to gain a market share with a long-term strategy whereas; SMEs compete with flexible investment logic to face the current demand situation. Investment scenarios are created to calculate the needed investment rates with a forecasting model to face target profitability rates. The investment needs seem to be more moderate than expected, which gives a managerial perspective to investment planning to maintain good profitability.

Modifying the cash conversion cycle: revealing concealed advance payments

Purpose – The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a modification of this measure that takes into account advance payments as a component of operational working capital. Design/methodology/approach – A new measure, the modified cash conversion cycle (mCCC) is introduced and tested with empirical data of companies in Helsinki Stock Exchange. Findings – The mCCC reveals the real efficiency of operational working capital in companies that receive advance payments to a remarkable extent. Research limitations/implications – The mCCC can be used in empirical analysis in academic studies. In this paper, the empirical data are used only for testing the mCCC. The paper concerns received advance payments, but the mCCC can also be extended also to other components of operational working capital ignored by the traditional CCC. Practical implications – The paper offers insights into the va...

Defined strategies for financial working capital management

Purpose - – The purpose of this paper is to develop strategies for financial working capital management and to present previous literature on financial working capital management and its measures. Design/methodology/approach - – Qualitative comparative analysis is used to formulate the strategies, and the variables in the analysis have been selected from previous literature. Empirical data consists of 91 companies listed in the Helsinki Stock Exchange during 2008-2012. Findings - – The results indicate 11 possible strategies for financial working capital management which all aim at increasing financial working capital. There are suitable strategies for all companies independent from their profitability, capital intensity or working capital requirements. Research limitations/implications - – The presented strategies have been created theoretically and have not been tested in companies, which could be done in future research. Originality/value - – This study has three contributions. First, previous literature on financial working capital management is reviewed. Second, a novel measure for financial working capital is developed. Third, strategies for financial working capital management are presented.

Benchmarking working capital management in the inter-organisational context

This paper benchmarks working capital management in the inter-organisational context by applying the financial value chain analysis method. The method extends the value chain analysis to industry level. Working capital management is studied in ICT, pulp and paper and automotive industries with the cash conversion cycle (CCC). The CCC of these industries is approximately 40, 60 and 70 days, respectively. The difference is mainly a consequence of the different cycle time of inventories. The 2008 financial crisis affected the working capital management of the industries similarly. Both the cycle time of accounts receivable and accounts payable increased between 2008 and 2009. Inside each industry, the CCC of the branches of the industry varies. The difference of the CCC between the branches that have the shortest and the longest CCC is six-fold in the ICT industry, two-fold in the pulp and paper industry and three-fold in the automotive industry.

The effect of digitalization is measurable – How transparency on the CCC creates momentum for working capital management?

The management of working capital and financial supply chains has recently gained increasing interest in companies as well as in academia. The advantages of digitalization are diverse in this area, and there is remarkable potential to release tied-up working capital through collaborative actions in the value chains. In this chapter, we review selected literature on measuring and managing inter-organizational working capital, and discuss the effect of digitalization on working capital management. Lastly, we propose a concept for measuring, monitoring, and managing working capital at the value chain level. The main element of the concept is a web-based platform which enables the linking and managing of the physical and financial flows in the value chain via modern technologies and real-time information flow.

Circulate Your Idling Assets

This paper aims to study how financial working capital affects profitability. Financial working capital can be defined as current assets and liabilities that are not tied in operational working capital and it therefore presents the liquidity situation of the company. The research in this paper has been conducted using simulation with flexible asset management (FAM) model. The simulations indicate that profitability can be improved by decreasing the cycle time of financial working capital. The effect of the reduction can be intensified by increasing earnings or average depreciation time or decreasing relative amount of fixed assets or the cycle time of operational working capital. The results imply that profitability can be improved with strategic decisions on fixed and current assets. The paper also encourages to use models such as FAM model in the strategic decision making.