Risk Pressure and Inventories Levels. Influence of Risk Sensitivity on Working Capital Level

Grzegorz Michalski

ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, 2016, vol. 50, issue 1, 189-196

Abstract: That paper as a continuation of the studies about financially efficient working capital decisions model components and its applications, presents discussion about risk sensitivity influence on enterprise decisions in area of net working capital investments. Effectiveness of net working capital investments is only one from possible explanations of liquidity measures in enterprises. Too small net working capital leads some enterprises to negative changes in their sale levels and as effect to weaker profits. Destruction of cash revenues creation possibilities is dangerous for them and is hard to rebuild possibilities to create cash revenues. Financially efficient working capital decisions predicts that before the crisis, during the crisis and after the crisis phases are connected with higher levels of working capital in processing enterprises. Investments in liquidity are a hedging instrument against individual risk sensitivity that is higher in crisis affected times. The paper aim is to compare real economy data with financially efficient working capital decisions predictions. The financially efficient working capital decisions model expected that liquidity measures like current liquidity indicator should be treated as forecasting indicator about future risk sensitivity of the entities. It could be also suitable as forewarning impulse of future standing of whole processing part of economy.

Keywords: working capital; risk sensitivity; enterprise value creation; financial analysis. (search for similar items in EconPapers)
JEL-codes: D92 E44 G00 G01 Q14 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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