Working Capital Management: Theory and New Zealand Empirical Evidence

Should working capital be managed according to the theory of working capital then it is expected that businesses would invest in working capital, finance working capital, monitor factors that influence working capital, manage cash, accounts receivable, inventory, accounts payable, the cash conversion cycle (aggregative approach), and measure and analyze performance to ensure that the long term (fixed) assets are utilized effectively and efficiently. Based on a study to determine how working capital is managed by New Zealand listed limited liability companies, it is evident that businesses in New Zealand invest in working capital, finance working capital, monitor factors that influence working capital, and measure and analyze performance to some extent. Unfortunately, the components of working capital (cash, accounts receivable, inventory, accounts payable) are managed independently of each other. They are not managed in aggregate by means of any specific model such as the cash conversion cycle. The purpose and function of working capital are not clearly and sufficiently recognized. There are deficiencies and insufficiencies in the management of working capital in New Zealand.