Operational risk in current assets investment decisions: Portfolio management approach in accounts receivable

Grzegorz Michalski

Agricultural Economics, 2008, vol. 54, issue 1, 12-19

Abstract: The basic financial purpose of an enterprise is maximization of its value. Trade credit management should also contribute to the realization of this fundamental aim. Many of the current asset management models that are found in the financial management literature assume book profit maximization as the basic financial purpose. These book profit-based models could be lacking in what relates to another aim (i.e., maximization of the enterprise value). The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences that can result from operating risk that is related to purchasers using payment postponement for goods and/or services. The present article offers a method that uses the portfolio management theory to determine the level of accounts receivable in a firm. An increase in the level of accounts receivables in a firm increases both net working capital and the costs of holding and managing accounts receivables. Both of these decrease the value of the firm, but a liberal policy in accounts receivable coupled with the portfolio management approach could increase the value. Efforts to assign ways to manage these risks were also undertaken; among them, a special attention was paid to adapting the assumptions from the portfolio theory as well as gauging the potential effect on the firm value.

Keywords: accounts receivable; trade credit management; incremental analysis; value based management; portfolio analysis (search for similar items in EconPapers)
Date: 2008
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://agricecon.agriculturejournals.cz/doi/10.17221/254-AGRICECON.html (text/html)
http://agricecon.agriculturejournals.cz/doi/10.17221/254-AGRICECON.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:54:y:2008:i:1:id:254-agricecon

DOI: 10.17221/254-AGRICECON

Access Statistics for this article

Agricultural Economics is currently edited by Ing. Zdeňka Náglová Ph.D.

More articles in Agricultural Economics from Czech Academy of Agricultural Sciences
Bibliographic data for series maintained by Ivo Andrle ().