Title: Appeasing company owners through effective working capital management

Authors: Salla Marttonen; Sari Viskari; Timo Kärri

Addresses: Department of Industrial Management, Lappeenranta University of Technology, P.O. Box 20, FIN-53851 Lappeenranta, Finland ' Department of Industrial Management, Lappeenranta University of Technology, P.O. Box 20, FIN-53851 Lappeenranta, Finland ' Department of Industrial Management, Lappeenranta University of Technology, P.O. Box 20, FIN-53851 Lappeenranta, Finland

Abstract: In the dynamic financial climate of the present day, companies should be aware of the potential of effective working capital management in reacting to market transformations. It is important to include the company owner's viewpoint in the research perspective. In this paper, we study the connection between working capital management and the return on equity. The managerial and financial perspectives of flexible asset management are integrated through analytical modelling. We conclude that the return on equity can be improved by shortening the cycle time of operational working capital. Both the interest rate of debt and the debt-to-equity ratio are taken into account in order to study the effects of dynamic financial conditions. Changes in the financial conditions could be compensated through effective management of working capital.

Keywords: working capital; return on equity; interest rate of debt; debt-to-equity ratio; modelling; flexible asset management; FAM; market transformation; company owners.

DOI: 10.1504/IJMFA.2013.052422

International Journal of Managerial and Financial Accounting, 2013 Vol.5 No.1, pp.64 - 78

Received: 05 Jun 2012
Accepted: 17 Nov 2012
Published online: 11 Oct 2014 *

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