Short-term Financial Management Research Articles

Trust and SME short-term financial policy. European evidence

PurposeDoes societal trust influence short-term financial management? Recent papers uncover the importance of societal trust for financial management in specific countries and large firms. Our paper aims to provide a comprehensive analysis of the impact of societal trust on short-term financial policies of SMEs, namely working capital management and cash holdings.Design/methodology/approachWe rely on a sample of 14,711 privately owned medium-sized manufacturing firms from 26 European countries with a sample period between 2014 and 2020. For estimation, we use pooled OLS and hierarchical linear models and control for several firm-specific and country-specific known determinants of short-term financial management. Moreover, our results are robust to the specific measurement of trust, financial constraints, and corruption.FindingsWe show a positive relationship between trust and working capital requirements investment and a negative relationship between trust and the level of cash holdings. Moreover, we show that trust attenuates the negative impact of being a financially constrained firm and the positive impact of national perceptions of corruption. Finally, in higher trustworthy environments, firms operate with relatively higher inventories and relatively lower trade credit granted and obtained.Research limitations/implicationsResults suggest that policies supporting societal trust may also foster business development and that when dealing with clients or suppliers from different trustworthy environments, firms may have to adapt their business models to incorporate trust differences between business environments.Originality/valueFirstly, the comprehensive analysis of the impact of trust on working capital management and cash holdings while controlling for different firm-level and country-level known determinants of short-term financial management. Secondly, it addresses a European sample of unquoted, medium-sized firms. Thirdly, it studies the combined effect of trust and financial constraints and trust and corruption.

THE IMPACT OF FINANCIAL MANAGEMENT TOOLS ON TOURISM COMPANIES IN THE POST-COVID ENVIRONMENT

This research focused on the financial management of tourism companies in Moldova during the post-Covid period, highlighting its critical role in ensuring business sustainability and stakeholder value creation in times of crisis. The aim of the paper is to determine the impact of financial management practices on the development of tourism companies of Moldova in post-Covid period in terms of short- and long-term financial management. The study employed the methods of financial analysis to identify the peculiarities of financial management of tourism companies of Moldova in the post-Covid period. The methodological framework of the analysis is the method of analyzing financial ratios from four groups: ROA; Debt/Equity; Liquidity; EBITDA Margin, Profit Margin. Key financial indicators for 2022 showed improvements: ROA increased to 2.1%, the Debt/Equity ratio improved to -2.8 times, liquidity management normalized to 1.7 times, EBITDA Margin rose to 32.1%, and Profit Margin to 6.9%. Practical significance of this study lies in its provision of a direct, applicable set of short-term and long-term financial management strategies for tourism companies during the economic recovery phase post-pandemic. Prospects for further research are to study both financial and market factors influencing the practice of financial management in the post-Covid period and adaptation as part of the economic recovery after the pandemic.

Working Capital Management at Carpenta Marbonit PVT Ltd Mannampetta

The present research seeks to study in depth the Working Capital Management of carpenta Carbonite Company, Mannampetta. The present research of working capital management needs special attention for efficient working and the business .It has been often observed that the shortage of working capital leads to the failure of a business. The proper management of working capital may bring about the success of a business firm. The management of working capital includes the management of current assets and current liabilities. The present research undertakes to deal with the net concept of working capital; excess of curliabilities over current liabilities. Working capital management is also known as short term financial management and is mainly concerned with the decisions relating to current assets and current liabilities.

Does Working Capital Management Influence Operating and Market Risk of Firms?

Extant empirical studies have predominantly focused on the nexus between working capital management (WCM) and corporate profitability. While there is a dearth of literature on the nexus between WCM and a firm’s risk, the present study examines Pakistani-listed firms coming from 12 diverse industrial segments to observe this association for a time span of ten years (2005–2014). To ensure robustness, we employed a System Generalized Method of Moments (SGMM) regression estimation to investigate the influence of WCM on the operational and market risk for firms. Empirical testing revealed that higher working capital levels were associated with lower volatility in firms’ stock price, which shows that shareholders prefer a conservative working capital policy. Moreover, firms with better cash positions were subject to lesser stock market volatility. In contrast, excess working capital and a larger net trade cycle were associated with increased volatility in the operating income. Besides, firms with lower working capital levels relative to their respective industry experienced fewer fluctuations in their operating profits. Our findings assert that short-term financial management has important ramifications for firms’ operating and market fundamentals. Practical implications are discussed for corporate managers and relevant stakeholders.

Surviving and growing in the post-Covid world: the case of Indian hotels

PurposeAs the world tries to come to terms with the exact economic and human cost of the Covid-19 pandemic, businesses are trying to discern and act on the implications of the “new normal” in order to survive and grow. Amongst all the industries impacted by the Covid-19 pandemic, travel and tourism has been the hardest hit. Operators across the value chain are trying to innovate and improvise in order to mitigate the impact of the pandemic on cash flows and working capital. The primary purpose of this paper then is to take a closer look at the measures adopted by the Indian hotel industry to restore revenues, conserve resources and attain greater operational and cost efficiencies in the midst of the Covid-19 crisis. The article also brings to the fore the growth-enhancing measures adopted by the industry in anticipation of a “new normal” in the post-Covid world.Design/methodology/approachThis study is based on primary data collected via a survey, followed by a series of interviews with a select group of senior finance managers from a wide spectrum of hotels based in India.FindingsOur findings suggest that Indian hotels have adopted several measures to enhance cash flows/revenues, reduce operating costs and cash outflows and conserve resources in order to tide themselves over during the crisis. Prominent cash flow–enhancing measures include price drops on special offers and reductions on list prices. Cost-cutting measures include economizing on energy consumption, reductions in labour costs and the postponement of maintenance expenses and discretionary spending. Resource conservation measures that have been adopted focus on postponement of capital expenditure and an increasing shift to localizing supply chains. Growth-enhancing measures adopted by the industry in anticipation of the long-term “new normal” include restructuring of the workforce and measures aimed at attracting domestic tourists and increasing product diversity.Originality/valueThis study attempts to understand the short-term and long-term financial management strategies adopted by Indian hotels in the face of unprecedented disruption caused by the Covid-19 pandemic. To the best of our knowledge, this paper is the first of its kind in the Indian context.

Global Financial Crisis, Working Capital Management, and Firm Performance: Evidence From an Islamic Market Index

This research investigates the impact of working capital management (WCM) on the profitability and market performance of firms that constitute an Islamic market index (Karachi Meezan Index [KMI-30]) in Pakistan during 2002–2013. The data have been divided into three parts, that is, preglobal (2002–2007), during (2007–2008), and postglobal financial crisis period (2008–2013), to examine the proposed relationship in different macroeconomic settings. Net trade cycle (NTC) and its components are used to measure the WCM efficiency, while NTC square is used to proxy the impact of excessive holdings of working capital on corporate performance. The econometric models are calculated in a generalized method of moments (GMMs)-based regression environment to ensure the robustness of empirical outcome. The results reveal that, as opposed to conventional businesses, KMI-30 firms are more ethical in their short-term financial management. Besides, such firms adopted a conservative WCM policy during the global financial crisis of 2007–2008. Furthermore, we confirm the presence of a concave relationship between working capital levels and firm performance as NTC is positively, whereas NTC square is negatively, related to firm performance. This article makes a significant contribution to the extant literature as it evaluates the impact of WCM on the profitability and market performance of Islamic market indexed firms under varying macroeconomic conditions.

Financial knowledge for corporate boards: what should board members know?

Although there is a vast body of research on corporate governance and corporate boards, no one seems to have addressed yet the following question: What should corporate board members know of financial theory and practice to properly discharge their fiduciary responsibilities? The lack of reflection on this issue is somewhat surprising given the central role financial matters are supposed to play in board’s discussions and decision making. The objective of this study is to offer a first reflection on this question. Different views of what a corporation is and who “owns” it, whether it is only shareholders or also a broader set of other stakeholders, result in different requirements concerning the financial knowledge board members should have. One such view is agency theory which considers that the main role of management is to create value for shareholders. From this perspective it will follow that board members should understand primarily the dynamics of value creation, with the concomitant focus on long-term strategy formulation. Another view is stakeholder theory which stresses the importance of the survival of the corporation. In this case the board should be conversant primarily with short term financial management, specially cash or liquidity management. The counterintuitive result is that when the board gives priority to the interests of shareholders, in opposition to the interests of other stakeholders beyond what law and good commercial and management practice recommends, it should focus primarily on long time value creation, while the more inclusive stakeholder view requires more attention on short-term cash management.

Do working capital management practices influence investment and financing patterns of firms?

PurposeThe present study aims to investigate the impact of working capital management (WCM) practices on the investment and financing patterns of listed nonfinancial companies in Pakistan for a span of 10 years.Design/methodology/approachThe study is based on secondary financial data of 354 listed nonfinancial Pakistani firms during the period of 2005–2014. The two-step generalized method of moment (GMM) regression estimation technique is employed to ensure the robustness of results.FindingsEmpirical testing reveals that: excessive funds tied up in working capital have a negative impact on the investment portfolio of sample firms. Besides, a negative relationship between change in fixed assets and excess net working capital posits that, eventually, firms use idle resources tied up in short-lived assets to boost their investment activities. Furthermore, larger working capital levels were associated with higher leverage ratio which indicates that firms with inefficient WCM policies have to rely heavily on long-term debt to meet their short-term financing requirements. Additional results indicate that firms that take more time to sell inventory and convert receivables to cash, make more use of debt. Results of cash management models illustrate that cash-rich firms have lower leverage levels which signal the strong financial health and internal revenue generation capability of such firms.Originality/valueThere is a dearth of empirical studies that examine the implications of WCM decisions on a firm's capital structure. Besides, these studies are only confined to how a WCM policy influences the long-term investment activities of a firm. The research contributes to the extant literature by empirically revealing a link between the WCM practices and the firm's long-range investment and financing patterns. Hence, financial managers shall account for the impact of their short-term financial management decisions on the capital structure of the firm.

A comparison of strategies for working capital management of listed food companies from Northern Europe

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.

Financial Management of Tires Retail and Restaurant Business in Greater Jakarta

This study aims to explore the financial management practices ofsmall-and-medium-enterprises (SMEs) in the Greater Jakarta (Jabodetabek). We investigate into 3 SME cases by conducting the semi-structured interviews with the owner-managers and using direct observations to know the practices of financial management of SMEs. Through the research, we have found six propositions related to the practice of short-term financial management. They apply bootstraps to ensure availability of working capital. They set aside cash reserves from retained earnings and minimize loans from financial institutions. They have the computerized system to track receivables facilitating working capital needs. They keep theirinventory control efficient to manage working capital. They screen customers using transactional records and reputations to minimize the risk of bad debts.

The role of financial management training in developing skills and financial self-efficacy

Background: Financial management is an essential management function for any small business. Short-term financial management is especially crucial for start-ups and established businesses. Owners of small businesses in South Africa often need to perform this function themselves; however, many do not possess the skills and practices required to perform this function effectively. Financial self-efficacy acts as an important motivating factor in managing the finances of a business. Focused training is important in developing financial management skills, but little research has been conducted to determine whether this type of training improves financial management skills and financial self-efficacy. Aim: To determine whether a tailor-made financial management training course improves the development of short-term financial management skills and financial self-efficacy of small business owners in South Africa. Setting: This study sampled small business owners who attended a tailor-made financial management training course that focused on short-term financial management principles. Method: A quasi-experimental study using a pre-test–post-test single-group design was applied using self-administered questionnaires. Results: The results from a one-tailed paired-sample t -test show that the training course significantly improved both the development of short-term financial management skills and the financial self-efficacy of participants. Conclusion: Tailor-made financial management training courses enhance the short-term financial management skills of owners of small businesses and also improve their financial self-efficacy. By improving both their skills and self-efficacy, small business owners are likely to make better financial decisions and be more motivated to implement financial management practices.

Credit ratings patterns for BRICS industrial companies

The main goal of this paper is to study interconnections between credit ratings and financial indicators of industrial companies from BRICS countries. We use method of patterns, one of the modern methods of nonlinear modeling, to identify groups of heterogeneous objects with different influence on ratings. Additionally, in this research, we evaluate Tobit regression model for selected groups and establish some credit rating patterns for the BRICS industrial companies. Our results of Tobin model, may have practical implementation in short-term financial management.

Gestão de capital de giro: um estudo nas microempresas moveleiras de Divinópolis, MG

As microempresas são fundamentais para a economia brasileira pela sua capacidade de gerar emprego e renda. Grande parte delas, porém, encerram suas atividades precocemente, sendo que, entre as causas, estão a falta de capital de giro e falhas no gerenciamento. Considerando a importância de uma gestão eficaz do capital de giro para a sobrevivência dessas empresas, o objetivo geral deste trabalho foi identificar e analisar as principais dificuldades das microempresas moveleiras de Divinópolis, Minas Gerais, na gestão do capital de giro. Trata-se de uma pesquisa descritiva com abordagem qualitativa e quantitativa. Os dados foram coletados por meio de questionário aplicado a quinze empresas do setor de moveleiro de Divinópolis, MG. Concluiu-se que as principais dificuldades na gestão dos recursos financeiros de curto prazo, na visão dos gestores financeiros que responderam à pesquisa, era fazer o controle diário de caixa, saber o lucro de cada trabalho realizado, separar as finanças do negócio e da vida pessoal dos sócios, saber o custo de cada trabalho e saber o valor dos estoques. Essas dificuldades foram atribuídas ao fato de os gestores financeiros não possuírem nenhuma formação na área financeira e porque exerciam outras funções, além da gestão financeira.

Impact of Strategic Short Term Financial Management on Corporate Earnings

Impact of Strategic Short Term Financial Management on Corporate Earnings

The Study of Financial Supply Chain Management: Challenges and Obstacles

Supply Chain Financing (SCF) is a product offered by banking sector to realize lower prices for credits. This product is offered to the supplier on the basis of the creditworthiness of the buyer. Credits can therefore been offered at a lower rate of financing than the supplier would be able to negotiate on its own. The goal of working capital management is to keep working capital on an optimal level. This optimal level is the level needed in order to meet the obligations of the company without having excessive levels of cash. Working capital management is concerned with the cash flows moving around the company and it is a big advantage if a company has a clear picture of where funds are required. The present study is a distinct type of work based on secondary information. This is a descriptive work. It discusses various challenges and obstacles which may come in the way of financial supply chain management. Companies can use the financial crisis as an opportunity to rethink their business model. This requires also further development of research in the area of short term financial management and tools for a more accurate risk management.

The Management of Working Capital and Profitability of SMEs in the Euro Area

Short-term financial management involves the management of current assets and liabilities, which directly affect an organisation’s liquidity and profitability. This study aims to examine the relationship between the operating performance and short-term financial management of small and medium-sized enterprises in Europe. Return on assets is used as a proxy for profitability and the cash conversion cycle is used as a proxy for working capital management. The analysis in this study is based on non-financial firms in 19 euro area countries, over a six-year period from 2008 to 2013. The negative and significant relationship between profitability and each of its determinants, such as average collection period, average payment period, average inventory period, cash conversion cycle and profitability, was found using the GLS and OLS methods. This means that managers may create value for shareholders through shorter collection periods, a guarantee of fast moving inventories and longer payment periods (provided this does not affect their credit risk). In addition, the governance structure of a firm affects how it reacts to external factors and influences its financial performance, for which reason the number of directors variable was included in this study in order to test this relationship. The results indicate that there is an inverse relationship between the number of director and profitability, which can be explained by the fact that a larger board of directors generates communication and decision problems. The positive relationship found between liquidity and profitability can be explained by the fact that firms use first of all the amount generated and accumulated internally before seeking external resources, especially in the case of SMEs, which have difficulties in obtaining external financing.

Appropriate Determination of Net Working Capital in Corporate Financial Management

Liquidity and working capital management belongs to one of the fundamental tasks of short-term financial management. However, in the context of net working capital, the issue of management of current assets and liabilities significantly overlaps with long-term financial management, in which the effects of various decisions have long-term consequences, with considerable inertia and possibility of high losses. The present study is therefore focused on the determination of appropriate amount of working capital, as an important part of financial decision making process in the company. The paper presents an empirical research aiming to identify the appropriate approach to accurate calculations of net working capital and determining its needs. The main contribution of the study can be found in the verification of calculation method of net working capital needs, which, according to the authors, may be beneficial both for business practice and teaching of financial management at universities.

THE INTERACTION OF WORKING CAPITAL MANAGEMENT AND PROFITABILITY MEASURES

Abstract In this article, the interaction between working capital management success and different measures of profitability was examined. When components of net working capital are kept at optimal levels, this situation benefits company to use resources more efficiently and helps profitability. Similarly, high levels of profitability helps avoiding idle working capital practices. By using a sample consisting of 172 non-financial companies traded Borsa Istanbul (BIST) in Turkey, and 5-year data covering 2009-2013, regressions were run to analyze how profitability affects working capital management which is measured in terms of Cash Conversion Cycle (CCC) and also how CCC affects profitability measures. Most of the alternative cases tested have given significant results. Decreasing CCC affect positively profitability measures. Similarly, improved level of profitability helps a better working capital management and affects inventory turnover, receivables collection and payable deferral. Although long-term financial decisions and policies have an important role in the sustainability and profitability of the companies, short-term financial management and working capital management which is the most important policy in this sense can also have a profound effect on the company success. Keywords: Working capital, profitability, liquidity Jel Codes: G30, L25, C23

The Impact Of Training Courses On Financial Management Skills Of South African Small-Business Owners

Short-term financial management skills are regarded as critical for South African small business owners to effectively manage their businesses so they may survive and grow. These skills can be developed by attending training courses, preferably those specifically designed for the small business environment offered by private sector service providers with the necessary experience and expertise. Record keeping, determining future profitability, managing working capital, measuring past performance, and tax and legal entity compliance are identified as key aspects in which small business owners require training. This study investigates the extent to which a training course, developed and presented by academics from the accounting profession, improved the knowledge of a group of South African small business owners regarding aspects of short-term financial management. A pre-test and post-test single group experimental design was used. In addition, the participants satisfaction with the training course and the trainers was assessed using a post-test design. The results show a significant increase in the participants knowledge of aspects of short-term financial management, as well as overall positive feedbac kregarding the training course and trainers. Challenges relating to language and the duration of the training course were identified. Future research on how such a training course could be combined with other types of interventions to further develop financial management skills is suggested.

Receivables Management Practices in Small Scale Enterprises

This paper reports the findings of an empirical investigation into the trade credit management practices in small scale enterprises of Anantapur District of Andhra Pradesh. The study involved interviews with owner-managers in 95 SSEs which comprises of six divergent industrial groups. The findings shows that although short-term financial management practices improve as firms grow, there is a scope for the owner-managers of small businesses to strengthen their trade credit management in order to reduce costs and enhance business performance. Moreover, they have to consider other financial options also.