Optimizing Working Capital Management

Nobanee, H. , AlHajjar, M. (2014) An Optimal Cash Conversion Cycle. International Research Journal of Finance and Economics. March (120), 13-22

10 Pages Posted: 29 Dec 2009 Last revised: 11 May 2017

Haitham Nobanee

Abu Dhabi University; University of Liverpool

Maryam Al Hajjar

Abu Dhabi University

Date Written: March 13, 2014

Abstract

Although the operating cycle, the cash conversion cycle, and the net trade cycle are more comprehensive measures of working capital management compared with traditional measures such as the current ratio and the quick ratio, these measures do not consider the optimal points of payables, inventory, and receivables. In this study, we suggest more accurate measures of the efficacy of working capital management where optimal levels of inventory, receivables, and payables are identified, and total holding and opportunity costs are minimized. In this paper, we suggest an optimal operating cycle, an optimal cash conversion cycle, and an optimal net trade cycle as more accurate and comprehensive measures of working capital management.

Keywords: Working Capital Management, Optimal Cash Conversion Cycle, Optimal Net Trade Cycle, Optimal Operating Cycle, Receivable Collection Period, Inventory Conversion Period, Payable Deferral Period

JEL Classification: G3, G32, L25, O25

Suggested Citation

Nobanee, Haitham and Al Hajjar, Maryam, Optimizing Working Capital Management (March 13, 2014). Nobanee, H. , AlHajjar, M. (2014) An Optimal Cash Conversion Cycle. International Research Journal of Finance and Economics. March (120), 13-22. Available at SSRN: https://ssrn.com/abstract=1528894 or http://dx.doi.org/10.2139/ssrn.1528894

Haitham Nobanee (Contact Author)

Abu Dhabi University ( email )

Abu Dhabi
United Arab Emirates

University of Liverpool ( email )

Liverpool, L69 7ZA
United Kingdom

Maryam Al Hajjar

Abu Dhabi University ( email )

PO Box 59911
Abu Dhabi, Abu Dhabi 59911
United Arab Emirates

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