Michalski, Grzegorz () (Wroclaw University of Economics, Department of Corporate Finance and Value Management, ul. Komandorska 118/120, pok. 704-Z, PL53-345 Wroclaw, Poland)
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The basic financial purpose of an enterprise is maximization of its value. Trade credit management should also contribute to realization of this fundamental aim. Many of the current asset management models that are found in 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 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 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, special attention was paid to adapting assumptions from portfolio theory as well as gauging the potential effect on the firm value.
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Volume (Year): 4 (2007) Issue (Month): 3 (September) Pages: 42-53 Download reference. The following formats are available: HTML
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Handle: RePEc:rjr:romjef:v:4:y:2007:i:3:p:42-53
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Find related papers by JEL classification: G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Linkages P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance