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Modifying the cash conversion cycle: revealing concealed advance payments

Author

Listed:
  • Anna-Maria Talonpoika
  • Sari Monto
  • Miia Pirttilä
  • Timo Kärri

Abstract

Purpose - – The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a modification of this measure that takes into account advance payments as a component of operational working capital. Design/methodology/approach - – A new measure, the modified cash conversion cycle (mCCC) is introduced and tested with empirical data of companies in Helsinki Stock Exchange. Findings - – The mCCC reveals the real efficiency of operational working capital in companies that receive advance payments to a remarkable extent. Research limitations/implications - – The mCCC can be used in empirical analysis in academic studies. In this paper, the empirical data are used only for testing the mCCC. The paper concerns received advance payments, but the mCCC can also be extended also to other components of operational working capital ignored by the traditional CCC. Practical implications - – The paper offers insights into the variations of CCC for class teachers, and business practitioners, particularly financiers, who deal with operational working capital, cash flow predictions and calculations. Originality/value - – There are current items that may have a remarkable effect on operational working capital, but traditionally only inventories, accounts receivable and accounts payable are discussed. The authors argue that also other current items should be taken into account, if they affect the efficiency of operational working capital. The new mCCC is encouraged to be used instead of the CCC when observing working capital management.

Suggested Citation

  • Anna-Maria Talonpoika & Sari Monto & Miia Pirttilä & Timo Kärri, 2014. "Modifying the cash conversion cycle: revealing concealed advance payments," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 63(3), pages 341-353, April.
  • Handle: RePEc:eme:ijppmp:v:63:y:2014:i:3:p:341-353
    DOI: 10.1108/IJPPM-12-2012-0130
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    Citations

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    Cited by:

    1. Stanić Milan & Cita Melita & Šulentić Marina Stanić, 2023. "The Influence of Working Capital Management on the Profitability of Manufacturing Enterprises - The Case of Croatia," South East European Journal of Economics and Business, Sciendo, vol. 18(2), pages 126-139, December.
    2. Ivakina, A. & Zenkevich, N., 2018. "Working capital optimization under liquidity constraints in collaborative supply chains," Working Papers 15110, Graduate School of Management, St. Petersburg State University.
    3. Diana Andone & Gheorghe Fatacean & Paul Minteuan & Nicolae Petric, 2017. "Financial Equilibrium In The Energy Industry," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 555-562, July.
    4. Andone Diana & Gaban Lucian, 2016. "The Cash Conversion Cycle In Romanian Companies," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 128-137, February.
    5. Lingesiya Kengatharan & W. S. Sanoli Tissera, 2019. "Do Corporate Governance Practices Influence Working Capital Management Efficiency? Evidence From Listed Manufacturing Companies in Sri Lanka," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 205-216, December.
    6. Chakuu, Sumeer & Masi, Donato & Godsell, Janet, 2019. "Exploring the relationship between mechanisms, actors and instruments in supply chain finance: A systematic literature review," International Journal of Production Economics, Elsevier, vol. 216(C), pages 35-53.

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