Effective Working Capital Investment - German Firms Case
Abstract
Effectiveness of working capital investments is only one from possible explanations of
working capital levels in firms. Too small working capital leads some firms to negative
changes in their sale levels. Destruction of cash revenues creation possibilities is dangerous
for them and is hard to rebuild possibilities to create cash revenues. Financial liquidity
investment efficiency model (FLIEM) 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 working capital levels 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 FLIEM predictions. The FLIEM model expected that working capital to
total assets 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.
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