Comparison Of Working Capital Management Between Chinese And American Enterprises

The working capital management policy must pay close attention to the trade-off between risk and return in the management of working capital.

Both the daily control of current assets and the daily control of current liabilities involve this problem.

Generally speaking, relatively stable working capital can provide more liquidity than expected level, and reduce financial risk to the greatest extent.

However, the remaining liquidity usually takes up more capital and reduces earnings.

Therefore, a healthy policy is also known as a low risk and low income policy.

The more radical policy of working capital is to raise the income level of enterprises and minimize the occupation of assets with high liquidity and low returns.

The negative impact has increased the financial risk, so the possibility of financial crisis has increased greatly.

Radical policy is also called high risk and high yield policy.

Most enterprises in the United States have clear working capital policies.

According to the sample survey conducted by Smith and Searl on 1000 companies in the United States, 30% of the enterprises formally implemented the working capital policy, and 60% of them had an informal working capital policy which all managers understood. Moreover, the larger the company scale, the greater the possibility of implementing the formal working capital policy.

From the relevant data of developed countries, the working capital policy is becoming more and more radical.

The proportion of current assets is less and less, and the proportion of current liabilities is increasing.

All of these should be attributed to the "top-level" trend of working capital management, the extensive application of commercial credit and the popularization of information technology.

In contrast, the working capital policy is still blank in our traditional financial theory, so many enterprises do not have a clear working capital policy and management system.

The management of working capital is mainly focused on the management of current assets such as cash, accounts receivable and inventory.

The famous general electric company of the United States will reduce its working capital as the goal of the enterprise; the president of the American standard company in 1996 also decided to reduce its working capital to zero, and it is precisely by relying on the compression of working capital to save the company from the brink of collapse; the working capital of Quaker Oats Asia Inc is relatively small compared with heavy industry, but in order to adapt to the increasingly fierce competition environment, the proportion of its working capital in sales revenue has been reduced from 13% in 1990 to 7.3% in 1993, saving 200 million dollars.

These are typical cases of large international companies pursuing zero working capital.

From this we can see that zero working capital has become a new concept of financial management, and has been valued and put into practice by many company managers worldwide.

The so-called zero working capital or negative working capital means that the current assets of the enterprise are equal to or less than the current liabilities of the enterprise.

Specifically, it is characterized by less inventory, and a financial performance of accounts receivable and short-term investments below accounts payable and short-term loans.

However, according to the traditional financial theory, the liquidity ratio is often emphasized in our enterprises, and the right amount of working capital is maintained to cope with financial risks.

If the turnover ratio of the company is less than 1, it will be considered as a risky business, and some creditors will even force their debts back.

At present, working capital accounts for about half of the total capital in manufacturing enterprises in China, and accounts for a higher proportion in commercial enterprises.

According to the 1995 national industry census, in state-owned industrial enterprises, current assets account for 40.2% of total assets and current liabilities account for 63.9% of the total liabilities of enterprises.

According to the successful cases of some international companies, we can see that zero working capital is no illusion.

The purpose of American enterprises in pursuit of zero working capital is to reduce inventory and receivables, and strengthen the management of working capital to improve economic efficiency.

Its theoretical basis is to do the same business with less capital and make working capital play a greater role, thereby creating more benefits.

It is embodied in: 1, freeing up the funds occupied by accounts receivable and stock, for high technology investment or production and operation, thereby enhancing the efficiency of enterprises; 2, prompting enterprises to accelerate production and delivery, surpass the level of peers, consolidate old customers and win new customers; 3, reduce inventory, save warehousing expenses; 4, urge enterprises to strengthen the management of accounts receivable, and reduce the risk of bad debts.