Evaluating net investments in the operating working capital under certainty: the integrated approach to working capital management

Transcription

1 Evaluaing ne inveen in he operaing working capial under cerainy BEH: Peer-reviewed and Open acce journal ISSN: he priary verion of he journal i he on-line verion BEH - Buine and Econoic Horizon Volue 11 Iue pp DOI: hp://dx.doi.org/ /beh Evaluaing ne inveen in he operaing working capial under cerainy: he inegraed approach o working capial anageen Alekandra Szpulak Naional Science Faculy, Deparen of Buine Foreca and Analye Wroclaw Univeriy of Econoic, Poland e-ai: alekandra.zpulak@ue.wroc.pl In day-o-day operaion anager decide on a variey of working capial variable influencing he ize of operaing cah flow i iing and rik and herefore he fir value. hi paper reveal he ool baed on NPV crierion appropriae for evaluaion of ne effec he change in working capial anageen have on he fir value. hi reearch erge previou work on he applicaion of he NPV crierion in he field of working capial anageen wihin dicouned cah flow fraework (Lieber and Orgler, 1975; Sarori and Hill, 1983; Ki and Chung, 1990; Arcelu and Srinivaan, 1993) and conribue o i by (i) including addiional working capial deciion variable: advance payen, labor co and deferral of alarie payen, (ii) focuing on oen of ouflow inead of oen of co ariing and (iii) i i deigned o be applicable for dicreionary ype of buine aciviy. A being value-baed ool preened here i uperior o well eablihed financial raio analyi uually uggeed for aeing he efficiency of working capial anageen. JEL Claificaion: G31, D92 Keyword: Working capial anageen, NPV crierion, cah flow fraework Inroducion In he hor er financial anageen anager decide on operaing working capial, OWC,: i ize, rucure and ource of financing. hi eay looking deciion proble boil down however in pracice ino a variey of deciion variable like: rade credi er boh graned and received, dicoun rae, price: ale, aerial, labor and invenory carrying and hipping, he delay of alarie payen, penaly charge for lae payen, rae on overdue payen fro collecion agency and ie he copany decide on elling overdue balance, lii of aerial conupion, ordering cycle, delivery bach and delivery cycle and operaing ae reerve are o far he o coon. When anager decide on one variable wihou changing he reaining, he evaluaion of he financial reul, i.e. change in he fir value, ee no o be a hard ak. However, hi iuaion occur rarely. Uually change in one variable aler he reaining: for exaple increaing he dicoun rae ay increae he ale and iulaneouly requireen for invenory boh aerial and finihed good, o he bach or he delivery cycle will change. More ofen anager u iulaneouly decide on ore han one variable which influence he fir value in a ixed anner and he ne reul of uch change i hard o evaluae. So he queion appear: how o evaluae change in OWC anageen policy in line wih wealh axiizaion crierion? Baed on well-eablihed financial heory in he field of capial budgeing, i i hypoheized in hi paper ha relevan for uch evaluaion i NPV crierion. However, he NPV crierion require he cah flow workhop no he accrual accouning. herefore, he percepion of inveen in OWC i oved fro radiional balance hee o cah flow workhop, paricularly NPV i applied o operaing cah flow Prague Developen Cener

2 Buine and Econoic Horizon Evaluaing ne inveen in he operaing working capial under cerainy BEH: a generaed by operaing cycle. NPV ay be appropriae crierion for deciion aking, hu i i conien wih wealh axiizaion crierion, occur efficien while evaluaing inveen in OWC over he enire planning horizon and capure he inegraive naure of he working capial anageen. he goal of hi paper i o deign he deciion crierion baed on NPV ha enable anager o ake a deciion in he field of OWC anageen ha i conien wih wealh axiizaion crierion. hi paper erge previou work on he applicaion of he NPV crierion in he field of working capial anageen wihin dicouned cah flow fraework (Lieber and Orgler, 1975; Sarori and Hill, 1983; Ki and Chung, 1990; Arcelu and Srinivaan, 1993) and conribue o i by (i) including addiional working capial deciion variable: advance payen, labor co and deferral of alarie payen and (ii) focuing on oen of ouflow inead of oen of co ariing. Moreover, (iii) i i deigned o be applicable for dicreionary ype of buine aciviy. he odel developed in hi paper ay help anager during conrac negoiaion a well a erve a a ool for iproving efficiency of working capial anageen. I enable evaluaion of cah flow foreca fro financial perpecive and herefore i applicaion ay help anager o increae fir value. he ouline of he paper i a follow. he nex par give a brief lieraure review on boh: inegraing approach o working capial anageen and applicaion of NPV crierion for deciion aking purpoe. here i a hor noe abou radiional vein a preened in exbook. he following par develop odel for ipliciy purpoe and i i divided ino wo ecion: fir preen he baic verion of he odel enabling for clear explanaion of he idea eployed in i and he econd ecion preen he full verion of he odel which i far ore coplicaed. hen a cae udy decribe he applicaion of he odel in producing copany focuing on deail required o ue i. Finally, ending par coni of concluion and ign for fuure reearch. Lieraure review Afer he exended period of coparenalizaion of working capial anageen relevan o i coponen (operaing cah, accoun receivable, invenorie and operaing curren liabiliie (accoun payable and accrual)), working capial anageen o recenly i viewed fro he inegraed perpecive 1. I happen due o obviou connecion beween each of hee coponen laing in fac in a ric relaionhip: hey all are iulaneouly eployed in he copany operaing cycle. Moreover, in ligh of Goldra heory of conrain i i juified o argue ha i i incorrec o conider anageen of OWC eparaely due o i coponen even hough opiizaion for each coponen i conneced wih one hoogenou for enire copany goal funcion. he radiional deciion crierion in he field of working capial anageen wa baed on co iniizaion (e.g., Miller and Orr, 1969; Merville and avi, 1973). However, a he financial heorie developed and ared o operae in he cah flow he radiional co iniizaion crierion appear a le effecive o profi axiizaion (Ki and Chung, 1990). I occur ainly due o he fac ha working capial anageen highly influence deand for he produc, abolihing in hi way he ain aupion under which co iniizaion and ne incoe axiizaion crierion are equivalen. In he wealh axiizaion rea he inegraion of working capial anageen ar fro accoun receivable anageen which include a lo of deciion variable (Schiff and Lieber, 1974; Lieber and Orgler, 1975) hen ove o invenory and accoun receivable inegraion (Ki and Chung, 1990), and finally inegrae all working capial 1 However, he laer approach ill doinae in he ex-book lieraure [like Brigha, Ehrhar 2008] while he forer doinae in journal paper (like Hill, Kelly, and Highfield, 2010; Kiechnick, Laplane, and Mouawi, 2013) 2015 Prague Developen Cener

3 Evaluaing ne inveen in he operaing working capial under cerainy BEH: coponen (Sarori and Hill, 1983, Arcelu and Srinivaan, 1993). Foundaion paper of Schiff and Lieber (1974), Lieber and Orgler (1975) bae he deciion rule on NPV crierion applied o profi: oppoie o Ki and Akin (1978) which ove he conideraion ino he dicouned cah flow fraework. Following Ki and Akin (1978) he conideraion on working capial anageen have been ebedded in he dicouned cah flow fraework. Apar fro all hee paper which analyze he working capial anageen deciion under cerainy, o recenly working capial anageen enered he field of deciion under uncerainy, paricularly a coningen clai approach (La and Chen, 1986; Chung, 1990). he radiional ool uually recoended o olve he deciion proble wihin working capial anageen are financial raio calculaed on he bai of accrual accouning variable a preened in he balance hee and incoe aeen. hee raio ay be divided ino hree group: (1) fir ay help anwer o he queion how uch he copany ha inveed in he working capial, (2) econd group indicae for how long copany ha inveed i fund in he working capial, and (3) hird group idenifie wha are he ource of financing inveen in working capial. Raio fro he fir group priary decribe he ize and rucure of working capial a preened in he lieraure fro he iddle of previou cenury (ee e.g., Collin, 1946; Muller, 1953). hi approach developed during he following period o he concep of ne operaing working capial (Brigha and Erghar, 2008). Raio fro he econd group refer o he concep of operaing cycle and financing cycle inroduced by Gian (1974) and operaionalized wihin financial aeen by Richard and Laughlin (1980) ino he concep of Cah Converion Cycle (CCC). CCC indicae for how long copany ha inveed i fund in one ypical operaing cycle. So far CCC i conidered by any (e.g., Shin and Soenen, 1998; Deloof, 2003) o be he one eaure howing he efficiency of working capial anageen: he horer CCC i he ore efficien i he working capial anageen. However, he la paper of Bano-Caballero, Garcia-eruel, and Marinez-Solano (2014) revile epirical evidence for nonlinear aociaion beween working capial anageen efficiency a eaured by CCC and fir profiabiliy. he concep of CCC wa exended by Genry, Vaidyanahan, and Lee (1990) o he raio of Weighed Cah Converion Cycle (WCCC) deigned o how ha wo copanie wih he ae CCC bu differen rucure of working capial have differen level of liquidiy, naely he one wih ore inveen in le liquid ae like invenorie ha higher WCCC. A being fairly coplicaed in calculaion hi WCCC raio ha never been popularized. However, i i iporan o noice ha he paper of Genry, Vaidyanahan, and Lee (1990) wa he fir aep o erge ize and iing of operaing cah flow alered by working capial anageen in one eaure baed on daa available fro financial aeen. he hird group concenrae on he righ ide of balance hee and indicae he ource of financing inveen in working capial. Aong ypical financial raio howing he rucure of liabiliie ouanding i a concep of Ne Liquid Balance (NLB) inroduced by Shulan and Cox (1985), howing ha he ource of financing working capial requireen (invenorie + accoun receivable - operaing curren liabiliie) pli ino fixed capial (priary equiy) and he non-operaing curren liabiliie (priary hor er deb diinihed by liquid financial ae (priary hor er inveen). Financial raio analyi of financial aeen i baically ex po analyi and when applied ex ane need pro fora aeen being unforunaely of lile accuracy. Conrary o i applying NPV wihin cah flow fraework o working capial anageen give i link o value creaiviy and erge ize, iing and rik of cah flow in one eaure, being herefore uperior o radiional financial raio analyi. he odel: Baic verion he odel developed in hi ecion i ore general o odel of Sarori and Hill (1983) and hu ha ore pragaic eaning for anager and uden; becaue i eaily Prague Developen Cener

4 Buine and Econoic Horizon Evaluaing ne inveen in he operaing working capial under cerainy BEH: capure he core idea eployed for deciion aking purpoe. Le aue ha he copany ha only wo deciion variable: credi er graned AR and credi er received. Copany operaing cycle coni of purchaing - producion - ale - collecion and i parially ponaneouly financed by accoun payable. Cah flow aociaed wih hi operaing and financing cycle are operaing cah inflow CF + and operaing cah ouflow CF - (ee Figure 1). Boh cah flow CF + and CF - appear a he end of he rade credi period AR and repecively, a i i no econoically juified o ele accoun earlier for cuoer or copany. Model aue coninuou flow reuling fro ale wha ean ha uch ieline ar every day of copany operaion. FIGURE 1. HE CASH FLOWS IMELINE Maerial purchae Payen for aerial CF - Sale Payen received CF + 0 S S + AR [day] Conan credi ale Auing ha he ale i known wih cerainy and conan over he whole planning horizon, cah flow for any operaing cycle follow he ae paern decribed by iing and agniude of cah flow. iing i defined by working capial policy paraeer ( AR and )and a a reul of conan credi ale cah flow CF + and CF - agniude doe no change over he whole planning horizon. A cah flow paern doe no change i i enough in hi cae o evaluae inveen in one ypical operaing cycle. he ne preen value NPV of cah flow aociaed wih hi ypical operaing cycle equal o: NPV CF ( 1 r) CF S ( 1 r) AR S AR, (1.1) where: r - rik free rae (under he condiion of cerainy), S - ie of ale. Change in he working capial policy paraeer fro AR and o AR and hould be acceped only when new NPV exceed he previou NPV: NPV ' NPV 0, (1.2) Dicreionary ie paern of credi ale A ale rarely i conan over he planning horizon in pracice, i i ore realiic o aue ha ale follow a ie paern CS(. I can be ie paern of any ype including 2015 Prague Developen Cener

5 Evaluaing ne inveen in he operaing working capial under cerainy BEH: eaonal variaion and, oreover, ale paern i freely o change over ie. A our conideraion refer o cerainy, we ill aue ale ie paern and i poible change are known wih cerainy. Addiionally, cah flow CF + and CF - are funcion of ale and follow ale ie erie paern, herefore cah flow are funcion of ie CF + ( and CF - (. iing of cah flow reul fro and AR. So finally cah flow paern properie are generaed fro boh: working capial policy paraeer and AR and ale ie paern. A each operaing cycle cah flow ay differ only due o ale ie paern and i change we need o include in uch cae all cah flow generaed fro ale o evaluae inveen in working capial over he whole planning horizon. Inroducing for ore convenience he coninuou dicouning, fir we calculae he NPV repreening he ne preen value of cah flow for each operaing cycle beginning a : NPV r r( ) CF( e CF( e, (1.3) S AR hen, we calculae he NPV of he whole projec - inveen in he working capial over he enire planning horizon : NPV 0 ( NPV CF( e r CF( e S AR r( ) ) e r d 0 NPV e r d, (1.4) Change in working capial policy paraeer fro AR and o AR and are accepable only if condiion 1.2 hold. he odel: Exended verion he odel developed in hi ecion origin in he paper of Lieber and Orgler (1975), Sarori and Hill (1983), Ki and Chung (1990), Arcelu and Srinivaan (1993). he fir paper conider only accoun receivable anageen and include working capial policy paraeer like: dicoun for early payen, rade credi, lae payen and bed deb. Model preened in he econd paper include only dicoun rae and rade credi er a a paraeer of working capial anageen. Model preened in he hird paper exend he econd odel of Sarori and Hill (1983) by bed deb and finihed good invenory policy: paricularly a bach of ale. I i no clear, however, why cah ouflow are aued by Ki and Chung (1990) o appear coninuouly during an operaing cycle leing hough he rade credi received fro upplier o be excluded fro he working capial anageen. he la odel, being o far he o exended, however exclude he poibiliy of lae payen and i devoed for wholealer. he odel developed in hi paper i inended o include all enioned working capial policy paraeer, focue on oen of ouflow inead of oen of co ariing and be applicable for dicreionary ype of buine aciviy. For ipliciy he odel will be divided ino cah inflow par and cah ouflow par. Cah inflow fro one operaing cycle Cah inflow ieline ay coplicae (ee Figure 2) by inroducing apar fro rade credi period AR he addiional working capial policy paraeer: elling price p per uni of ale S(, advance payen a a porion v of credi ale appearing a any ie beween he =0 anding for he beginning of he operaing cycle and = anding a he end of rade credi period received fro upplier (advance payen are priary ued for Prague Developen Cener

6 Buine and Econoic Horizon Evaluaing ne inveen in he operaing working capial under cerainy BEH: purchae of aerial for producion), cah dicoun d, rade credi period wih a dicoun ARd, penaly rae k for lae payen appearing any ie beween he AR and LAE, and rae b relevan o porion of overdue balance received fro collecion agency a ie LAE being he axiu ie copany rie o collec i balance. FIGURE 2. CASH INFLOWS IME LINE IN HE EXENDED MODEL WHERE CS( IS A CREDI SALE EQUALS O ps( Advance payen a v of CS( a any ie beween 0 and Payen wih a dicoun a (1- d)q of CS( a ie ARd Payen wihin rade credi a λ1(1-v-q) of CS( a ie AR Lae payen a (k+1)λ2(1-v-q) of CS( a any ie beween AR and LAE Bed deb a b(1-λ1-λ2 )(1-v-q) of CS( a ie LAE 0 A P ARd AR LAE (day) Preen value of cah inflow fro one operaing cycle equal o: PV CF LAE AR 0 v p S( e ( k 1) ( 1 v 2 r d ( 1 d ) q p S( e q ) p S( e r S ARd r( ) d b( 1 )( 1 v 1 2 ( 1 v 1 q ) p S( e q ) p S( e LAE r, S AR r( ) (1.5) Where: v - porion of credi ale relevan o cuoer paying in advance; p - price per uni ale; S( - ale ie erie following any ie paern; - rade credi period received fro upplier; d - dicoun rae for early payen; q - porion of credi ale relevan o cuoer uing a cah dicoun; ARd - rade credi period relevan o dicoun for early payen; λ 1 - porion of credi ale relevan o cuoer paying on ie wihin rade credi; AR - rade credi period graned by copany; k - penaly rae for lae payen; λ 2 - porion of credi ale relevan o cuoer paying lae; LAE - he end of he operaing cycle, axiu ie period copany collec i balance; b - porion of he overdue balance old o collecing agency relevan o cah received. Cah ouflow fro one operaing cycle Siilarly o cah inflow ieline cah ouflow ieline (ee Figure 3) coplicae oehow if we inroduce apar fro rade credi received fro upplier addiional working capial policy deciion variable: price for uni of aerial p ued in producion of S( uni, aerial conupion relevan o requireen for aerial, advance payen ade for upplier a ie v, uage of he dicoun d offered by upplier paid a ie d of rade credi, uni co of labor l paid a L and h and h a he carrying invenory co of aerial and finih good repecively and h c a co of collecing overdue balance - all paid a BILL, C M and C FG a hipen co of aerial and finihed good repecively paid a M and FG. Converely however o cah inflow cah ouflow occur a defined fixed ie Prague Developen Cener

7 Evaluaing ne inveen in he operaing working capial under cerainy BEH: FIGURE 3. CASH INFLOWS IME LINE IN HE EXENDED MODEL WHERE CS( IS A CREDI SALE EQUALS O ps( Advance payen for aerial a a porion v of ps( a ie v Payen for aerial wih dicoun a (1-d)q of ps( a ie d Payen for aerial a (1-vq) of ps( a ie Payen for labor a pls( a ie L Bill payen a (h+hfg) of S( and hc of lae payen a ie BILL 0 A Pv Payen for aerial hipen a CM of S( a ie M M d al e A P Payen for finihed good hipen a CFG of S( a ie FG F G L BIL L [day] Preen value of cah ouflow fro one operaing cycle equal o: PV CF l C FG p S( e v p S ( e L r S( e FG r v r h h fg (1 d ) q p S ( e h d r (1 v r BILL M r r c 2 p (1 v q ) S( e CM S ( e (1.6) q ) p S ( e Where: v - porion of co of producion paid in advance; p - price per uni of aerial; - uni aerial conupion; v - ie credi period for advance payen; d - dicoun for early payen received fro upplier; q - porion of producion co paid wih a dicoun; d - ie credi period wih dicoun; - ie credi period received fro upplier; p l - labor co per uni; L - alarie deferral period; h - carrying co for aerial invenory a a rae; h fg - carrying co for finih good invenory per uni; h c - co of collecing overdue balance a a rae; BILL - ie of paying bill; C - delivery co for aerial a a rae; M - ie credi period received for delivery of aerial; C FG - delivery co for finihed good a a rae; FG - ie credi period received for delivery of finihed good. he odel inegraion he inegraion of A and B par of he odel relie on erging preen value of cah ouflow and cah inflow calculaed a ie according o 1.5 and 1.6. ie now repreen he beginning of he each operaing cycle over he enire planning horizon, o ha he ne preen value of all cah inflow and ouflow a he beginning of he planning horizon equal: NPV 0 CF CF r PV PV e d (1.7) Change in he working capial policy naely change in he odel paraeer lied below 1.5 and 1.6 are accepable if condiion 1.2 hold Prague Developen Cener

8 Buine and Econoic Horizon Evaluaing ne inveen in he operaing working capial under cerainy A cae udy: Producing copany BEH: A an exaple of above odel applicaion a ediu ize privaely held producing copany ha been choen. Curren copany policy hould be characerized a forced fi o all - copany receiver and upplier. Copany produc go ainly o large uliple reailer who do no negoiae bu raher reque and define er of rade credi given by he copany a well a elling price. Copany upplier operae on oehow hard dairy arke poiled paricularly by coon agriculural UE policy and eerging peculae induced by he la crii all reuling in higher aerial price volailiy and i liied acce. Working capial anageen in uch circuance involve: aerial price, labor price, elling price - per uni, carrying co and ranpor co per bunch, rade credi er received. Copany anager conider change in he OWC policy and he ak i o evaluae hi change and ake a deciion ha add value. Model operaionalizaion Copany produc are no hoogenou, o a he fir rial one produc i aken - eled cheee cube. Financial daa a recorded by copany are expreed oehow differenly fro hoe lied in he odel (1.6 and 1.5), o oe odel odificaion are needed. Paricularly, all variable co a recorded fro invoice and alarie are uni co. Available uni co rucure wa eiaed on he bai of co injured in April Oher available daa gahered on a daily bai over period o include: daily ale o one reailer, i uni price, dae of iuing invoice o one reailer and correponding dae of cah inflow fro ha reailer, dae of iuing aerial invoice fro all upplier and correponding dae of cah ouflow and balance hee a he end of he odificaion of he odel preened in he previou ecion include inroducing of a co rucure and dibureen payen paern build iilarly o (Sone, 1976). he preen value of daily ale a herefore i: NPV p S( e r AR k ri a fi ps( e f j pas( i1 j1 e r j, (1.8) Where: S( - daily ale in kg; p - ale price per kg; AR - er of rade credi graned o reailer; p - aerial co per kg of ale; - er of rade credi received fro upplier; p a - adiniraive co per kg of ale; f i - i-h porion of p paid a i, f a j - j- h porion of p a paid a j, r - WACC a a daily rae. he NPV over he enire planning horizon coe direcly fro (1.4) and oied in (1.8) preen value of alarie: NPV NPV e 0 r d p S( e l r L, (1.9) Where: NPV - ne preen value of cah flow conneced wih day ale a day of ale ; L - alarie payen deferral period; p l - alarie per kg of ale Model eiaion he priary ak i o prepare daily ale foreca. he daily ale over he period o are ploed on he Figure Prague Developen Cener

9 Evaluaing ne inveen in he operaing working capial under cerainy BEH: FIGURE 4. DAILY SALES OVER HE PERIOD O AND SALES FORECASS OVER HE 3 CONSECUIVE WEEKS ale foreca o idenify ie erie paern he analyi of ACF and PACF funcion wa eployed. On he bai on he ACF and PACF paern and poraneau Q e of Box-Liung wo yeaic coponen of he ie erie were poined: negaive rend and weekly eaonal variaion. Afer reoval of hee coponen by regreion analyi wih independen variable: repreening deeriniic rend and Q1,, Q5 duy variable repreening weekly eaonal variaion he ACF and PACF wa again eployed for reidual. A howing no ignifican effec, i.e. whie noie, he odel wa aeed a being well pecified: ee below he for paraeer eiaion and baic regreion aiic: Regreion uary: logs R=, R^2=, Adj.R2=, F(6,338)=13813, p<0,0000. error:,53903 Excluion condiion: v3=0 (day off) N=344 b* SE of b* b SE of b (338) p Mon ue Wed hu Fri Source: Oupu fro SAISICA. he re of he inpu daa o he odel given by 1.8 wa calculaed a follow. he ale price per kg ha hifed everal ie over he analyzed period. For he planning horizon he average price fro he la 20 day wa calculaed and aued o be 9.38 zl/kg for he fuure period. Nex, he dae of cah inflow were analyzed. A credi er graned equal 60 day he real er differ a lile fro 57 o 63 day. Reailer pay only wice a week: currenly on ueday and hurday. he analyze of dae of inflow how ha invoice required on Sunday ill ueday will be eled on ueday, while invoice required on Wedneday ill Saurday will be eled on hurday. able 1 conain calculaion of cah inflow baed on ale foreca and dae of cah inflow fro ha ale Prague Developen Cener

10 Buine and Econoic Horizon Evaluaing ne inveen in he operaing working capial under cerainy BEH: ABLE 1. SALES AND DAE OF CASH INFLOWS FORECASS Day of ale Day of week Sale foreca [kg] CF+ [zl] Invoice credi Day of er ending dae week Day of inflow Credi er ending dae rade credi er on = ue = wed = hu = fri = on = ue = wed = hu = fri = on = ue = wed = hu = fri = Nex, on he bai of purchaing invoice iuing dae, dae of correponding cah ouflow and ype of co idenificaion, i.e. aerial and adiniraive, he porion f i and f a j were calculaed and 2 payen paern - one for aerial and he oher for adiniraive dibureen were buil a in Sone (1972) approach (ee able 2). ABLE 2. PAYMEN PAERNS FOR MAERIALS AND ADMINISRAIVE COSS Maerial co (ouflow) Porion f i Payen deferral period Adiniraive co (ouflow) Porion f a j Payen deferral period cah he uni co equal 8.68 per kg and co rucure a given by he copany wa: 78% of uni co are aerial co, 11% are adiniraive co and reaining 11% are alarie. he coponen of ouflow foreca are in he able 3. ABLE 3. CASH OUFLOWS AND IS COMPONENS FORECASS Day of ale Sale CF- Maerial Adiniraive Salarie a) foreca [kg] Prague Developen Cener

11 Evaluaing ne inveen in he operaing working capial under cerainy BEH: ABLE 3. CASH OUFLOWS AND IS COMPONENS FORECASS Day of ale Sale CF- Maerial Adiniraive Salarie a) foreca [kg] Noe: a) Salarie are paid on onhly bai a we have May and Jun fir par will be eled on he 10-h of July, while he econd of he 10-h of July. Merging inforaion fro he able 1, 2 and 3 and having WACC a a daily rae (0.02%) he preen value of each cah flow wa calculaed - fir a he dae of ale and econd prior o he beginning of planning period (ee able 4). ABLE 4. PRESEN VALUES OF CASH FLOWS, NPV OF EACH DAILY SALES AND NPV FOR WHOLE PROJEC Day of ale CF+ [zl] PV(CF+) CF-[zl] PV(a.) PV(ad.) PV(alary) a) NPV EBI = zl NPV = zl Noe: a) Preen value of alarie expendiure wa already calculaed a period prior o = 1 and included in calculaion of NPV (according o 1.9). Copany anager conider negoiaion wih aerial upplier concerning lenghening he lengh of rade credi period. Such change will unforunaely increae he co abou 3%. New and old payen paern are in able 5. ABLE 5. PAYMEN PAERNS UNDER CURRENLY AND NEW OWC MANAGEMEN POLICY Currenly applied OWC policy Porion f i Payen deferral period New OWC anageen policy Porion f a j Payen deferral period Recalculaing ouflow foreca CF- in accordance wih he change in payen paern and he level of co reul in NPV of zł. A condiion NPV - NPV > 0 hold anager hould inroduce new policy. Concluion Prague Developen Cener

12 Buine and Econoic Horizon Evaluaing ne inveen in he operaing working capial under cerainy BEH: he goal of hi paper wa o deign a deciion crierion baed on NPV ha ay erve a a ool for OWC anageen in line wih wealh axiizaion crierion. Applying he concep preened here ove he radiional percepion of working capial fro financial aeen o inveen approach. NPV i applied o operaing flow generaed by operaing cycle and capure he influence of OWC anageen deciion variable on i. hi cae udy, baed on original daa, ephae he advanage of hi concep and proof ha i ay be eaily applied in pracice. A few iporan poin hould be aed in he uary. Fir, he odel preened here i very flexible and applicable for dicreionary paern of ale a well a cah flow ieline paern. Second, he approach aken in he paper, naely inveen approach o working capial anageen. link i wih he value relaed copany objecive. Applying he concep in pracice enable anager o ake deciion ha add wealh being, herefore i becoe uperior o radiional ool applied in he field of working capial anageen. Alhough i doen value he inveen in OWC ielf, i give a lea oe general opinion on i - like in he cae when he NPV over he planning horizon i negaive. Paricularly, a few epirical work dicloe ha inveen in OWC diinih fir value (Kiechnick, Laplane, and Mouawi, 2013; Aleida and Eid, 2014) which, however, require deeper heoreical conideraion. Evenually, looking a he working capial fro cah flow perpecive change he radiional view of working capial - fro coponen of ae and liabiliie o ne cah flow and a a uch hould add value o he fir. Reference Aleida J.R., Eid W., Acce o finance, working capial anageen and copany value: Evidence fro Brazilian copanie lied on BM&FBOVESPA, Journal of Buine Reearch, 67(5), pp Arcelu F.J., Srinivaan G., Inegraing working capial deciion, he Engineering Econoi, Vol.39, No.1, pp.1-15 Bano-Caballero S., Garcia-eruel P.J., Marinez Solano P., Working capial anageen, corporae perforance, and financial conrain, Journal of Buine Reearch, 67(3), pp Brigha F.E., Ehrhard M.C., Financial anageen. heory and pracice, wih hoon ONE - Buine School Ediion Chung K.H., Invenory deciion under deand uncerainy: A coningen clai approach, he Financial Review, No.25, pp Collin G.W., Analyi of working capial, he Accouning Review, Vol.21, Iue4, pp Deloof M., Doe working capial anageen affec profiabiliy of Belgian fir?, Journal of Buine Finance and Accouning, 30(3&4), pp Genry J.A., Vaidyanahan R., Lee H.W., A weighed cah converion cycle, Journal of he Financial Manageen Aociaion, 19(1), pp Gian L., Eiaing corporae liquidiy requireen: A iplified approach, he Financial Review, 9(1), pp Hill M.D., Kelly W., Highfield M.J., Ne operaing working capial behavior: A fir look, Financial Manageen, Vol.39, Iue 2, pp Kiechnick R., Laplane M., Mouawi R., Working capial anageen and hareholder wealh, Review of Finance, Vol.17(5), pp Ki Y.H., Akin J.C., Evaluaing inveen in accoun receivable: A wealh axiizing fraework, he Journal of Finance, Vol.33(2), pp Ki Y.H., Chung K.H., An inegraed evaluaion of inveen in invenory and credi: A cah flow approach, Journal of Buine and Accouning, Vol.17, No.3, pp Prague Developen Cener

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