FINALLY FINAL TOPICS

Project in Topics
By
Angelos Dimakakos

Project Title
“How important Working Capital Management is to a firm’s value maximization, under crisis conditions.”

Name: Angelos Dimakakos
Professor: George Sainis
Due: April 1st 2014
Word Count: 3986 (Without Appendix and Bibliography)

Literature review

As one of the basic decisions in corporate finance, besides the capital structure decisions and capital budgeting decisions, working capital management is a very important component of corporate finance since efficient working capital management will lead a firm to react quickly and appropriately to unanticipated changes in market variables, such as interest rates and raw material prices, and gain competitive advantages over its rivals (Appuhami, 2008). Managers spend a considerable time on day-to-day working of capital decisions since current assets are short-lived investments that are continually being converted into other asset types (Rao, 1989)In the case of current liabilities, the firm is responsible for paying obligations mentioned under current liabilities on a timely basis. Liquidity for the on-going firm is reliant, rather, on the operating cash flows generated by the firm’s assets (Soenen, 1993). As a result, working capital management of a company is a very sensitive area in the field of financial management (Joshi, 1995).

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. Not being able to maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. Altman’s (1968) multivariate predictor model based on US companies includes working capital as one of the model components. Using data drawn from the UK companies, Taffler (1982) developed a four-variable model of failure prediction. All the four variables include a variant on working capital as a

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