INPROFORUM 2014

Impact of Cash Conversion Cycle on Sales of Enterprises Manufacturing Machinery and Equipment in the Czech Republic
Zdeněk Motlíček, Pavlína Pinkova, Dana Martinovičová

Language: en
Last modified: 2015-04-07

Abstract


The way of working capital management may have a significant impact on companies’ performance and their strategic plan. This is caused by an unambiguous effect of the size of working capital both on companies’ costs and companies’ sales. The impact on strategic planning emerges from the fact that setting up the structure of working capital determines the required size of storage and production capacities. However, working capital management options are determined by the impact of individual interest groups. With respect to a relationship between working capital and sales, the customers are a decisive interest group. This fact stems from the pressure of customers on time availability of required products and on payment terms that are associated with product delivery. The failure to comply the requirements may lead to fluctuation of customers and subsequently to fluctuation of sales.

The paper presents an empirical research on the extent of influence of the fulfilling customers ’needs on the size of sales. These variables have been quantified using the inventory turnover, which represents the availability of particular products for customers, and the average collection period, which represents the payment terms via provided maturity of receivables. The results presented in the paper quantify the degree of these impacts and thereby enable to the managers to quantify the impacts of individual optimization decisions on the size of sales in the following period. It allows the businesses to set such a level of working capital that maximizes the company’s performance.


Keywords


Working capital; sales; aggressive management policy; conservative management policy; inventory turnover; average collection period

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