Optimizing Working Capital Management

Posted: 29 Dec 2009 Last revised: 12 Aug 2012

Haitham Nobanee

Abu Dhabi University; University of Liverpool

Maryam Al Hajjar

Abu Dhabi University

Date Written: December 28, 2009

Abstract

Although the operating cycle, the cash conversion cycle, and the net trade cycle are more comprehensive measures of working capital management comparing with traditional measures of liquidity such as the current ratio and the quick ratio. However, these measures do not consider the optimal points of payables, inventory, and receivables. In this study we suggest more accurate measures of the efficiency of working capital management where optimal levels of inventory, receivables, and payables are identified, and total holding and opportunities cost are minimized and recalculating the operating cycle, the cash conversion cycle, and the net trade cycle according to these optimal points.

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 (December 28, 2009). 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

Paper statistics

Abstract Views
3,871