BazEkon - The Main Library of the Cracow University of Economics

BazEkon home page

Main menu

Szpulak Aleksandra (Uniwersytet Ekonomiczny we Wrocławiu)
Assessing the Financial Distress Risk of Companies Operating under Conditions of a Negative Cash Conversion Cycle
e-Finanse, 2016, vol. 12, nr 4, s. 72-82, rys., tab., bibliogr. s. 82
Płynność finansowa, Kapitał obrotowy, Symulacja Monte Carlo, Ocena ryzyka
Financial liquidity, Working capital, Monte Carlo simulation, Risk assessment
The purpose of the paper is to point out the accounting-based variables and relationships between them which enable us to measure financial liquidity in a way appropriate for assessing the financial distress risk of companies operating under conditions of a negative Cash Conversion Cycle (CCC). Contrary to the mainstream literature on bankruptcy predictions, mainly based on data modelling nested in statistics, in this article the approach is taken on modelling the bankruptcy process relevant for companies operating under conditions of negative CCC. The applied research methodology adopts Monte Carlo simulations based on a spreadsheet financial model of company operations built to simulate operating cash inflows and outflows generated by companies operating under negative CCC (following a methodology of a spreadsheet approach to financial modeling and risk analysis given by Charnes (2007)). To define financial liquidity measures the concept of Net Liquid Balance (Shulman & Cox, 1985) and cash investment in Operating Working Capital (Szpulak, 2014) is applied. The results enable us to overcome the insufficiency of existing financial liquidity indicators for assessing the financial distress of companies operating under conditions of negative CCC. The additions to theory and practice consist of theoretical underpinnings of a financial distress mechanism possible for companies operating under conditions of negative CCC and definition of financial liquidity measures relevant for these companies. (original abstract)
Full text
  1. Brigham, F.E., Ehrhard, M.C. (2008). Financial Management, Theory and Practice, Thomson.
  2. Charnes, J. (2007). Financial Modeling with Crystal Ball and Excel. Jon Wiley & Sons.
  3. Daves, R.D., Ehrhardt, M., Shrieves, R.E. (2004). Corporate Valuation: A Guide for Managers and Investors. Cengage Learning.
  4. Dechow, P. (1994). Accounting Earnings and Cash Flows as Measures of Firm Performance. The Role of Accounting Accruals. Journal of Accounting Economics, 18, 3-42.
  5. Dudycz, T. (1998). Analiza Finansowa. Wrocław: Wydaw. AE we Wrocławiu.
  6. Etiennot, H., Lorenzo, A.P., Allende, V.S. (2012). Working Capital Management: An Exploratory Study. Journal of Applied Finance, No. 1
  7. Filbeck, G., Krueger, T.M. (2005). An Analysis of Working Capital Management Results Across Industries. Mid-American Journal of Business, Vol. 20, No. 2.
  8. Hawawini, G., Viallet, C., Vora, A. (1986). Industry Influence on Corporate Working Capital Decisions. Sloan Management Review, Summer.
  9. Hendel, I. (1996). Competition under Financial Distress. The Journal of Industrial Economics, No. 54(3).
  10. Jensen, M.C. (1986). The Agency Costs of Free Cash Flows, Corporate Finance, and Takeovers. AEA Papers and Proceedings, May.
  11. Richards, V.D., Laughlin, E.J. (1980). A Cash Conversion Cycle Approach to Liquidity Analysis. Financial Management, Spring.
  12. Shulman, J.M., Cox, R. (1985). An Integrative Approach to Working Capital Management. Journal of Cash Management.
  13. Sierpińska, M., Wędzki, D. (1997). Zarządzanie płynnością finansową w przedsiębiorstwie. Warszawa: PWN.
  14. Szpulak, A. (2014). Operacyjny kapitał pracujący w rachunku przepływów pieniężnych. Zarządzanie finansami firm -teoria i praktyka, PN UE Wrocław, no. 363.
  15. Szpulak, A. (2015). On the Importance of Free Cash Flow Bias Resulting From Static Approach to Free Cash Flow Analysis. The Essence and Measurement of Organizational Efficiency, Springer (in progress).
  16. Ustawa o rachunkowości z dnia 29 września 1994, Dz.U. z 2013, poz. 330.
  17. Vernimmen, P. (2005). Corporate Finance. Theory and Practice. USA: Jon Wiley & Sons.
  18. Wędzki, D. (2000). Problem wykorzystania analizy wskaźnikowej do przewidywania upadłości polskich przedsiębiorstw -stadium przypadków. Bank i Kredyt, no. 5.
  19. Wędzki, D. (2003). Strategie płynności finansowej przedsiębiorstwa. Kraków: Oficyna Ekonomiczna.
  20. Wędzki, D. (2006). Analiza wskaźnikowa sprawozdania finansowego. Kraków: Wolter Kluwer.
Cited by
Share on Facebook Share on Twitter Share on Google+ Share on Pinterest Share on LinkedIn Wyślij znajomemu