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Corporate Finance, 5th Edition
book

Corporate Finance, 5th Edition

by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi
December 2017
Intermediate to advanced content levelIntermediate to advanced
1024 pages
32h 22m
English
Wiley
Content preview from Corporate Finance, 5th Edition

Chapter 48 Managing working capital

Is it supply management or is it strategy? It’s finance, General!

On aggregate in Continental Europe, working capital represents large amounts (c. 15% on capital employed). Customer credits (and symmetrically, supplier credits), which are commercial loans between companies, amount to more than three times the amount of short-term loans granted to corporates.

The similarity between the amount of working capital and that of net debt is not completely coincidental, as often these two items behave in concert. An increase in working capital means an increase in net debt, as a large number of companies can testify following their experiences in late 2008. A drop in working capital often means a drop in net debt, as a large number of companies can testify following their experiences in 2009.

Finally, the problems and the amounts of working capital are not identical for all sectors. There is a world of difference between industry (management of work-in-progress, credit limits for major customers, etc.) and the services sector.

Section 48.1 A bit of common sense

Working capital is an investment, like any other, even if on occasion there is less choice involved (for example, when a customer “forgets” to pay by the due date and turns ...

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Publisher Resources

ISBN: 9781119424482Purchase book