Profitable working capital management in industrial maintenance companies

Abstract

Purpose – The purpose of this paper is to analyze the impact of working capital management on profitability. This connection is further studied in industrial maintenance service companies. Design/methodology/approach – Analytical modeling has been used as the research method. The empirical analyses have been made on the basis of financial statements. Findings – The paper presents an analytical flexible asset management (FAM) model, which reveals a significant negative correlation between the cycle times of operational working capital and the return on investment. The importance of working capital management is emphasized in the industrial maintenance service sector, because of light fixed assets and good profitability. Research limitations/implications – There are some mathematical limitations in the applicability of the model introduced in this paper. These limitations should be addressed in further research. Practical implications – The FAM model can be utilized as a tool in decision making in firms, both in the short term and in the long term. On the basis of this paper, the decision makers can consider how important working capital management is in their industry. In the industrial maintenance service business, more attention should be paid to active management of working capital. Originality/value – The FAM model is a new decision-making tool. The paper also contributes to the unexplored perspective of industrial maintenance companies. The paper is valuable to service companies, as the research of working capital management has mostly focussed on manufacturing industries.