A Liquidity-Profitability Trade-Off Model for Working Capital Management

10 Pages Posted: 22 May 2009

See all articles by Mihir Dash

Mihir Dash

Alliance University - School of Business

Rani Ravipati

Alliance University - School of Business

Date Written: May 10, 2009

Abstract

This paper proposes a goal programming model for working capital management. Goal programming is necessary to model the working capital decision, as a balance has to be achieved between the conflicting objectives of liquidity and profitability. The model determines, for given working capital turnover and fixed assets turnover ratios, how funds should be maintained between working capital/current assets and fixed assets to achieve targeted levels of liquidity and profitability, whilst minimizing the opportunity cost/loss of excess liquidity.

Keywords: goal programming, working capital management, liquidity, profitability, turnover ratios, opportunity cost

JEL Classification: G30

Suggested Citation

Dash, Mihir and Ravipati, Rani, A Liquidity-Profitability Trade-Off Model for Working Capital Management (May 10, 2009). Available at SSRN: https://ssrn.com/abstract=1408722 or http://dx.doi.org/10.2139/ssrn.1408722

Mihir Dash (Contact Author)

Alliance University - School of Business ( email )

Chikkahagade Cross,
Chandapura-Anekal Road, Anekal
Bangalore, Karnataka 562106
India
9945182465 (Phone)

Rani Ravipati

Alliance University - School of Business ( email )

C-1102,aparna towers,
Kondapur,kothaguda
Hyderabad, TN 500084
India
8374652225 (Phone)

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