Abstract
The research presents the application of fuzzy logic for synthetic evaluation of strategies for working capital management of twelve food companies from Northern Europe in 2005–2015. A set of financial ratios formed an aggregated indicator reflecting the complexity of relationships between the level and structure of current assets and liabilities of a firm. Based on the proposed indicator, four types of strategies for working capital management were identified and characterized in terms of risk and return preferences. Only a few companies from the sample demonstrated a direct orientation on liquidity or value within their strategies for working capital management. To retain flexibility in short-term financial management, most firms applied moderate policies for current assets and liabilities that helped them in maintaining liquidity and reducing the cost of financing. The integrity of the proposed method for the synthetic evaluation of working capital management makes it a convenient managerial tool suitable for use in firms operating in a turbulent business environment.
Highlights
Since working capital is one of the principal drivers of value in a company, its scarcity causes many adverse effects beginning with gaps in financing current operations and ending with insolvency in the long-term (Deloof 2003, Chatterjee 2012, Vural et al 2012)
Selected variables were divided into two sub-indicators, A1 and A2, that depicted the relationship between the level and structure of current assets (A1) and current liabilities (A2) as principal components of the process of working capital management (Table 1)
Aggressive strategy implied low complex indicators that pointed to a value orientation in the short-term financial management of a firm
Summary
Since working capital is one of the principal drivers of value in a company, its scarcity causes many adverse effects beginning with gaps in financing current operations and ending with insolvency in the long-term (Deloof 2003, Chatterjee 2012, Vural et al 2012). Managers balance the level of the working capital to mitigate the negative impact of a trade-off between risk and return (Apak et al 2016, Huang and Mazouz 2018, Peng and Zhou 2019). The application of such an approach supports the continuity of business and provides a sufficient return on assets. It requires a profound policy or strategy for working capital management that perfectly fits the specific goals of the company and its shareholders. The relationship between these categories is not straightforward and remains subject to many economic factors (Enqvist et al 2014, Çelik et al 2016, Pirttilä et al 2019, Tsuruta 2019)
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