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1、外文原文An Analysis of Working Capital Management Resultsacross IndustriesGreg Filbeck and Thomas M. KruegerAbstractFirms are able to reduce financing costs and/or increase the funds available for expansion by minimizing the amount of funds tied up in current assets. We provide insights into the perform
2、ance of surveyed firms across key components of working capital management by using the CFO magazines annual Working Capital Management Survey. We discover that significant differences exist between industries in working capital measures across time. In addition, we discover that these measures for
3、working capital change significantly within industries across time.IntroductionThe importance of efficient working capital management is indisputable. Working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for whic
4、h cash will soon be required (Current Liabilities). The objective of working capital management is to maintain the optimum balance of each of the working capital components. Business viability relies on the ability to effectively manage receivables, inventory, and payables. Firms are able to reduce
5、financing costs and/or increase the funds available for expansion by minimizing the amount of funds tied up in current assets. Much managerial effort is expended in bringing non-optimal levels of current assets and liabilities back toward optimal levels. An optimal level would be one in which a bala
6、nce is achieved between risk and efficiency.A recent example of business attempting to maximize working capital management is the recurrent attention being given to the application of Six Sigma methodology. Six Sigma methodologies help companies measure and ensure quality in all areas of the enterpr
7、ise. When used to identify and rectify discrepancies, inefficiencies and erroneous transactions in the financial supply chain. Six Sigma reduces Days Sales Outstanding第1页（共6页）外文原文(DSO)，accelerates the payment cycle, improves customer satisfaction and reduces thenecessary amount and cost of working c
8、apital needs. There appear to be many success stories, including Jennifer Townes (2002) report of a 15 percent decrease in days that sales are outstanding, resulting in an increased cash flow of approximately $2 million at Thibodaux Regional Medical Center. Furthermore, bad debts declined from $3.4
9、million to $600.000. However, Waxers (2003) study of multiple firms employing Six Sigma finds that it is really a “get rich slow” technique with a rate of return hovering in the 1.2 4.5 percent range.Even in a business using Six Sigma methodology, an “optimal” level of working capital management nee
10、ds to be identified. Industry factors may impact firm credit policy, inventory management and bill-paying activities. Some firms may be better suited to minimize receivables and inventory, while others maximize payables. Another aspect of “optimal” is the extent to which poor financial results can b
11、e tied to sub-optimal performance. Fortunately, these issues are testable with data published by CFO magazine, which claims to be the source of “tools and information for the financial executive.” and are the subject of this research.In addition to providing mean and variance values for the working
12、capital measures and the overall metric, two issues will be addressed in this research. One research question is “are firms within a particular industry clustered together at consistent levels of working capital measures?” For instance, are firms in one industry able to quickly transfer sales into c
13、ash, while firms from another industry tend to have high sales levels for the particular level of inventory. The other research question is “Does working capital management performance for firms within a given industry change from year-to-year?”The following section presents a brief literature revie
14、w. Next, the research method is described, including some information about the annual Working Capital Management Survey published by CFO magazine. Findings are then presented and conclusions are drawn.Related Literature第2页（共6页） 外文原文The importance of working capital management is not new to the fina
15、nce literature. Over twenty years ago, Largay and Stickney (1980) reported that the then-recentbankruptcy of W.T. Grant, a nationwide chain of department stores, should have been anticipated because the corporation had been running a deficit cash flow from operations for eight of the last ten years
16、of its corporate life. As part of a study of the Fortune 500s financial management practices, Gilbert and Reichert (1995) find that accounts receivable management models are used in 59 percent of these firms to improve working capital projects, while inventory management models were used in 60 perce
17、nt of the companies. More recently, Farragher, Kleiman and Sahu (1999) find that 55 percent of firms in the S&P Industrial index complete some form of a cash flow assessment, but did not present insights regarding accounts receivable and inventory management, or the variations of any current ass
18、et accounts or liability accounts across industries. Thus, mixed evidence exists concerning the use of working capital management techniques.Theoretical determination of optimal trade credit limits are the subject of many articles over the years (e.g. Schwartz 1974; Scherr 1996) with scant attention
19、 paid to actual accounts receivable management. Across a limited sample, Weinraub and Visscher (1998) observe a tendency of firms with low levels of current ratios to also have low levels of current liabilities. Simultaneously investigating accounts receivable and payable issues. HillSartoris and Fe
20、rguson (1984) find differences in the way payment dates are defined. Payees define the date of payment as the date payment is received, while payors view payment as the postmark date. Additional WCM insight across firms, industries and time can add to this body of research.Maness and Zietlow (2002.
21、51. 496) presents two models of value creation that incorporate effective short-term financial management activities. However, these models are generic models and do not consider unique firm or industry influences. Maness and Zietlow discuss industry influences in a short paragraph that includes the
22、 observation that “An industry a company is located in may have more influence on that companys fortunes than overall GNP” (2002. 507). In fact, a careful review of this 627-page textbook finds only sporadic information on actual firm levels of WCM dimensions, virtually nothing on第3页（共6页） 外文原文indust
23、ry factors except for some boxed items with titles such as “Should a Retailer Offer an In-House Credit Card” (128) and nothing on WCM stability over time. This researchwill attempt to fill this void by investigating patterns related to working capital measures within industries and illustrate differ
24、ences between industries across time.An extensive survey of library and Internet resources provided very few recent reports about working capital management. The most relevant set of articles was Weisel and Bradleys (2003) article on cash flow management and one of inventory control as a result of e
25、ffective supply chain management by Hadley (2004).Research MethodThe first annual CFO Working Capital Survey, a joint project with REL Consultancy Group, was published in the June 1997 issue of CFO (Mintz and Lezere 1997). REL is a London, England-based management consulting firm specializing in wor
26、king capital issues for its global list of clients. The original survey reports several working capital benchmarks for public companies using data for 1996. Each company is ranked against its peers and also against the entire field of 1000 companies. REL continues to update the original information
27、on an annual basis.REL uses the “cash flow from operations” value located on firm cash flow statements to estimate cash conversion efficiency (CCE). This value indicates how well a company transforms revenues into cash flow. A “days of working capital” (DWC) value is based on the dollar amount in ea
28、ch of the aggregate, equally-weighted receivables, inventory and payables accounts. The “days of working capital” (DWC) represents the time period between purchases of inventory on account from vendor until the sale to the customer, the collection of the receivables and payment receipt. Thus, it ref
29、lects the companys ability to finance its core operations with vendor credit. A detailed investigation of WCM is possible because CFO also provides firm and industry values for days sales outstanding (A/R), inventory turnover and days payables outstanding (A/P).Research Findings：Average and Annual W
30、orking Capital Management PerformanceWorking capital management component definitions and average values for the entire 1996 2000 period. Across the nearly 1.000 firms in the survey, cash flow from operations,第4页（共6页） 外文原文defined as cash flow from operations divided by sales and referred to as “cash
31、 conversion efficiency” (CCE). Averages 9.0 percent. Incorporating a 95 percent confidence interval,CCE ranges from 5.6 percent to 12.4 percent. The days working capital (DWC), defined as the sum of receivables and inventories less payables divided by daily sales, averages 51.8 days and is very simi
32、lar to the days that sales are outstanding (50.6). Because the inventory turnover rate (once every 32.0 days) is similar to the number of days that payables are outstanding (32.4 days). In all instances, the standard deviation is relatively small, suggesting that these working capital management var
33、iables are consistent across CFO reports.Industry Rankings on Overall Working Capital Management PerformanceCFO magazine provides an overall working capital ranking for firms in its survey, using the following equation: Industry-based differences in overall working capital management are presented f
34、or the twenty-six industries that had at least eight companies included in the rankings each year. In the typical year, CFO magazine ranks 970 companies during this period. Industries are listed in order of the mean overall CFO ranking of working capital performance. Since the best average ranking p
35、ossible for an eight-company industry is 4.5 (this assumes that the eight companies are ranked one through eight for the entire survey). It is quite obvious that all firms in the petroleum industry must have been receiving very high overall working capital management rankings. In fact, the petroleum
36、 industry is ranked first in CCE and third in DWC (as illustrated in Table 5 and discussed later in this paper). Furthermore, the petroleum industry had the lowest standard deviation of working capital rankings and range of working capital rankings. The only other industry with a mean overall rankin
37、g less than 100 was the Electric & Gas Utility industry, which ranked second in CCE and fourth in DWC. The two industries with the worst working capital rankings were Textiles and Apparel. Textiles rank twenty-second in CCE and twenty-sixth in DWC. The apparel industry ranks twenty-third and twe
38、nty-fourth in the two working capital measuresConclusions第5页（共6页） 外文原文The research presented here is based on the annual ratings of working capital management published in CFO magazine. Our findings indicate a consistency in how industries “stack up” against each other over time with respect to the
39、working capitalmeasures. However, the working capital measures themselves are not static (i.e. averages of working capital measures across all firms change annually); our results indicate significant movements across our entire sample over time. Our findings are important because they provide insigh
40、t to working capital performance across time and on working capital management across industries. These changes may be in explained in part by macroeconomic factors. Changes in interest rates, rate of innovation and competition are likely to impact working capital management. As interest rates rise,
41、 there would be less desire to make payments early, which would stretch accounts payable, accounts receivable and cash accounts.The ramifications of this study include the finding of distinct levels of WCM measures for different industries, which tend to be stable over time. Many factors help to exp
42、lain this discovery. The improving economy during the period of the study may have resulted in improved turnover in some industries, while slowing turnover may have been a signal of troubles ahead. Our results should be interpreted cautiously. Our study takes places over a short time frame during a
43、generally improving market. In addition, the survey suffers from survivorship bias only the top firms within each industry are ranked each year and the composition of those firms within the industry can change annually.Further research may take one of two lines. First, there could be a study of whet
44、her stock prices respond to CFO magazines publication of working capital management ratings. Second, there could be a study of which, if any, of the working capital management components relate to share price performance. Given our results, these studies need to take industry membership into conside
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