Working Capital Models: A Generic Framework

Abstract

The importance of working capital management has been recognised recently in academia as well as in business. Yet, research on working capital models has been scarce, and many companies focus on managing the individual components of working capital instead of a holistic approach. This paper studies working capital models comprising the management of inventories, accounts receivable and accounts payable. Based on the systematical analysis of empirical data, consisting of the financial figures of 161 companies operating in the value chains of the automotive, pulp and paper, and ICT industries, the study introduces a generic framework for working capital models. The framework includes six generic working capital models and one sub-model, and offers a holistic view of working capital management. The study takes the initial step towards tightening collaborative actions between value chain partners regarding working capital. The introduced framework offers a managerial tool for analysing the material and financial flows at the company level as well as in the inter-organisational context.