Towards Inter-organizational Working Capital Management

Working capital is an investment which is tied up into the inventories and accounts receivable and which is released with accounts payable. Due to the current business landscape with tightened financial conditions and finance markets, organizations emphasize efficient working capital management. With efficient working capital management, a company can reduce the need of finance, free up cash, increase profitability, improve liquidity, increase the efficiency of operations, and decrease (financing) costs. From the perspective of an individual company, efficient working capital management means decreasing inventory levels by shortening the cycle time of inventories, decreasing accounts receivable by shortening the trade credit terms and effective collection procedures, and increasing the level of accounts payable by paying the suppliers later. From an inter-organizational perspective, however, working capital should not be sub-optimized by a single company but holistic view to working capital management through the supply chain should be adopted to create value and improve performance together. The purpose of this research is to take academic research as well as practical management towards inter-organizational working capital management. The thesis discusses the benefits as well as mechanisms of working capital management in the inter-organizational context and has two main objectives: (1) to examine the effect of inter-organizational working capital management on performance in the value chain context and (2) to develop models of working capital management for internal as well as inter-organizational value chains. The results of the archival research conducted in the value chain of the pulp and paper industry and the value chain of the automotive industry indicate that companies can increase relative profitability by managing working capital comprehensively by taking into account all three components, and holistically though the value chain. Companies in the value chain benefit from different strategies in working capital management depending on the position of the company in the value chain. This can be taken into account in inter-organizational working capital management. The effects of inter-organizational working capital management actions on the financing costs of working capital were studied via simulations. Simulations also show that the value chain and individual companies benefit from an inter-organizational view to working capital management. Inter-organizational working capital management actions include for example: shortening the cycle time of inventories, reducing product costs, shifting inventories, shortening payment terms, and considering the cost of capital. The thesis also provides solutions for the practical requirements for tools to control working capital. The design science part of the research introduces the adjusted cash conversion cycle (ACCC) model for internal value chains, as well as models for working capital management in the inter-organizational value chain context: the working capital management model (WCMM) and the financial cycle time model (FCTM) designed in corporation and product levels respectively. This research contributes to literature on working capital management and interorganizational accounting. The research gives a holistic, inter-organizational view to the management of working capital. It advances the knowledge in working capital management on operational level, increases knowledge in the recently risen theme of supply chainoriented, collaborative working capital management, combines management accounting research with supply chain management research, and contributes to the demand of practical inter-organizational accounting methods. In addition, the research has strong practical focus as new managerial methods are introduced.

Kestomagneettitahtigeneraattorin kannattavuustarkastelu vesivoimalaitoksen saneerauksen yhteydessä

Työssä vertaillaan kestomagneettitahtigeneraattorin kannattavuutta suhteessa perinteiseen erillismagnetoituun tahtigeneraattoriin. Sähkön markkinahinnan nousu tulevaisuudessa, pakottaa etsimään uusia ratkaisuja jo olemassa olevien vesivoimalaitosten hyötysuhteen parantamiseksi. Hyötysuhteeseen vaikuttavat laitoksen mekaaniset ja sähköiset häviöt. Työn kohteena olevan vesivoimalaitoksen saneeraus on ajankohtainen lähivuosina, ja samalla avautuu mahdollisuus vaihtaa myös vanha erillismagnetoitu tahtigeneraattori uudempaan kestomagneeteilla toteutettuun. Työssä tarkastellaan kalliimman investoinnin kannattavuutta suhteessa kasvavaan energian tuotantoon. Tarkastelujaksolla lisääntyneen vuosituotannon osuuden rahallista arvoa verrataan investointihetken kustannuksiin. Työn edetessä havaittiin, että virtaamamäärän lisäyksellä on vahva rooli kannattavuutta laskettaessa. Pienillä virtaamilla ei saavuteta riittävää tuottoa ilman mekaanisen hyötysuhteen parantamista. Pelkästään generaattorityypin vaihto ei tällä hetkellä kannata, kun nykyisellä generaattorilla on käyttöaikaa jäljellä kymmeniä vuosia. Tilanne voi muuttua kannattavaksi esimerkiksi äkillisen generaattorivaurion myötä.

Financial Slack and Bidding Firms’ Takeover Announcement Stock Returns – an Event Study

Despite the fact that the literature on mergers and acquisitions is extensive, relatively little effort has been made to examine the relationship between the acquiring firms’ financial slack and short-term post-takeover announcement abnormal stock returns. In this study, the case is made that the financial slack of a firm is not only an outcome of past business and financing activities but it also may affect the quality of acquisition decisions. We will hypothesize that the level of financial slack in a firm is negatively associated with the abnormal returns following acquisition announcements because slack reduces managerial discipline over the use of corporate funds and also because it may give rise to managerial self-serving behavior. In this study, financial slack is measured in terms of three financial statements ratios: leverage ratio, cash and equivalents to total assets ratio and free cash flow to total assets ratio. The data used in this paper is collected from two main sources. A list comprising 90 European acquisition announcements is retrieved from Thomson One Banker database. The stock price data and financial statements information for the respective firms is collected using Datastream. Our empirical analysis is two-fold. First, we conduct a two-sample t-test where we find that the most slack-rich firms experience lower abnormal returns than the most slack-poor firms in the event window [-1, +1], significant at 5% risk level. Second, we perform a cross sectional regression for sample firms using three financial statements ratios to explain cumulative abnormal returns (CAR). We find that leverage shows a statistically significant positive relationship with cumulative abnormal returns in event window [-1; +1] (significance 5%). Moreover, cash to total assets ratio showed a weak negative relationship with CAR (significant at 10%) in event window [-1; +1]. We conclude that our hypothesis for the inverse relationship between slack and abnormal returns receives empirical support. Based on the results of the event study we get empirical support for the hypothesis that the capital markets expect the acquisitions undertaken by slack-rich firms to more likely be driven by managerial self-serving behavior and hubris than do those undertaken by slackpoor firms, signaling possible agency problems and behavioral biases.

Exchange rate volatility and the use of foreign currency derivatives: Impact of 2008 global financial crisis

This thesis examines the impact of foreign exchange rate volatility to the extent of use of foreign currency derivatives. Especially the focus is on the impacts of 2008 global financial crisis. The crisis increased risk level in the capital markets greatly. The change in the currency derivatives use is analyzed by comparing means between different periods and in addition, by linear regression that enables to analyze the explanatory power of the model. The research data consists of financial statements figures from fiscal years 2006-2011 published by firms operating in traditional Finnish industrial sectors. Volatilities of the chosen three currency pairs is calculated from the daily fixing rates of ECB. Based on the volatility the sample period is divided into three sub-periods. The results suggest that increased FX market volatility did not increase the use foreign currency derivatives. Furthermore, the increased foreign exchange rate volatility did not increase the power of linear regression model to estimate the use foreign currency derivatives compared to previous studies.

Mapping financial stability

The ongoing global financial crisis has demonstrated the importance of a systemwide, or macroprudential, approach to safeguarding financial stability. An essential part of macroprudential oversight concerns the tasks of early identification and assessment of risks and vulnerabilities that eventually may lead to a systemic financial crisis. Thriving tools are crucial as they allow early policy actions to decrease or prevent further build-up of risks or to otherwise enhance the shock absorption capacity of the financial system. In the literature, three types of systemic risk can be identified: i ) build-up of widespread imbalances, ii ) exogenous aggregate shocks, and iii ) contagion. Accordingly, the systemic risks are matched by three categories of analytical methods for decision support: i ) early-warning, ii ) macro stress-testing, and iii ) contagion models. Stimulated by the prolonged global financial crisis, today's toolbox of analytical methods includes a wide range of innovative solutions to the two tasks of risk identification and risk assessment. Yet, the literature lacks a focus on the task of risk communication. This thesis discusses macroprudential oversight from the viewpoint of all three tasks: Within analytical tools for risk identification and risk assessment, the focus concerns a tight integration of means for risk communication. Data and dimension reduction methods, and their combinations, hold promise for representing multivariate data structures in easily understandable formats. The overall task of this thesis is to represent high-dimensional data concerning financial entities on lowdimensional displays. The low-dimensional representations have two subtasks: i ) to function as a display for individual data concerning entities and their time series, and ii ) to use the display as a basis to which additional information can be linked. The final nuance of the task is, however, set by the needs of the domain, data and methods. The following ve questions comprise subsequent steps addressed in the process of this thesis: 1. What are the needs for macroprudential oversight? 2. What form do macroprudential data take? 3. Which data and dimension reduction methods hold most promise for the task? 4. How should the methods be extended and enhanced for the task? 5. How should the methods and their extensions be applied to the task? Based upon the Self-Organizing Map (SOM), this thesis not only creates the Self-Organizing Financial Stability Map (SOFSM), but also lays out a general framework for mapping the state of financial stability. This thesis also introduces three extensions to the standard SOM for enhancing the visualization and extraction of information: i ) fuzzifications, ii ) transition probabilities, and iii ) network analysis. Thus, the SOFSM functions as a display for risk identification, on top of which risk assessments can be illustrated. In addition, this thesis puts forward the Self-Organizing Time Map (SOTM) to provide means for visual dynamic clustering, which in the context of macroprudential oversight concerns the identification of cross-sectional changes in risks and vulnerabilities over time. Rather than automated analysis, the aim of visual means for identifying and assessing risks is to support disciplined and structured judgmental analysis based upon policymakers' experience and domain intelligence, as well as external risk communication.

Pienille ja keskisuurille yrityksille annetut mukautetut tilintarkastuskertomukset ja tilintarkastajien kokemuksia niiden antamiseen johtaneista syistä

Tutkielman ensisijaisina tavoitteena on selvittää syitä, jotka johtavat mukautetun tilintarkastuskertomuksen antamiseen pk-yritykselle. Empiria-osuuden toissijaisena tavoitteena on selvittää, millainen on ammatillisen harkinnan osuus tilintarkastajan päätöksenteossa ja kuinka esiin tulleita seikkoja voidaan ryhmitellä teemoittain. Empiirinen osuus suoritettiin laadullisena tutkimuksena. Tutkielman aineiston muo-dostavat haastattelut ja pk-yrityksille annetut mukautetut tilintarkastuskertomukset. Haastattelut toteutettiin puolistrukturoidun ja teemahaastattelun välimaastoon sijoittuvalla haastattelumuodolla. Haastateltavina oli viisi KHT-tilintarkastajaa. Haastattelutulokset analysoitiin kokoamalla litteroiduista haastatteluista eri kokonaisuudet teemoittain. Tilintarkastuskertomuksiin liittyvät tulokset analysoitiin kokoamalla excel-taulukkoon kirjoitetuista perustelut- kappaleiden tiedoista eri kokonaisuudet teemoittain. Tutkimustulosten perusteella mukautetun tilintarkastuskertomuksen antamiseen johtavia syitä on useita ja ne poikkeavat toisistaan hyvin paljon. Syyt luokitellaan teemoittain seuraavasti: lainvastaisuudet, toiminnan kannattavuus ja rahoitus, kirjanpitoon ja tilinpäätökseen liittyvät syyt sekä hallinto. Edellä mainituista teemoista useimmiten toistuivat lainvastaisuudet ja toiminnan kannattavuuteen ja rahoitukseen liittyvät syyt. Lainvastaisuuden teemaan liittyvistä syistä toistui eniten osakepääoman menetyksen rekisteröimättä jättäminen. Toiminnan kannattavuuden ja rahoituksen teemaan liittyvistä syistä esiintyi oman pääoman menettämisen lisäksi liiketoiminnan kannattamattomuus eli tappion tekeminen. Tutkimustuloksista yksi mielenkiintoisimpia on hallintoon liittyvät mukauttamisen syyt. Hallinnon teemaan liittyvä syy tutkimusaineistossa oli omistajien keskinäinen eripura, mikä näkyy tilinpäätöksen allekirjoitussivulla allekirjoitusten puuttumisena ja asian nou-semisena tilintarkastuskertomukseen.

Automated Purchase to Pay Process Value Modeling and Comparative Process Speeds

The importance of efficient supply chain management has increased due to globalization and the blurring of organizational boundaries. Various supply chain management technologies have been identified to drive organizational profitability and financial performance. Organizations have historically been concentrating heavily on the flow of goods and services, while less attention has been dedicated to the flow of money. While supply chains are becoming more transparent and automated, new opportunities for financial supply chain management have emerged through information technology solutions and comprehensive financial supply chain management strategies. This research concentrates on the end part of the purchasing process which is the handling of invoices. Efficient invoice processing can have an impact on organizations working capital management and thus provide companies with better readiness to face the challenges related to cash management. Leveraging a process mining solution the aim of this research was to examine the automated invoice handling process of four different organizations. The invoice data was collected from each organizations invoice processing system. The sample included all the invoices organizations had processed during the year 2012. The main objective was to find out whether e-invoices are faster to process in an automated invoice processing solution than scanned invoices (post entry into invoice processing solution). Other objectives included looking into the longest lead times between process steps and the impact of manual process steps on cycle time. Processing of invoices from maverick purchases was also examined. Based on the results of the research and previous literature on the subject, suggestions for improving the process were proposed. The results of the research indicate that scanned invoices were processed faster than e-invoices. This is mostly due to the more complex processing of e-invoices. It should be noted however that the manual tasks related to turning a paper invoice into electronic format through scanning are ignored in this research. The transitions with the longest lead times in the invoice handling process included both pre-automated steps as well as manual steps performed by humans. When the most common manual steps were examined in more detail, it was clear that these steps had a prolonging impact on the process. Regarding invoices from maverick purchases the evidence shows that these invoices were slower to process than invoices from purchases conducted through e-procurement systems and from preferred suppliers. Suggestions on how to improve the process included: increasing invoice matching, reducing of manual steps and leveraging of different value added services such as invoice validation service, mobile solutions and supply chain financing services. For companies that have already reaped all the process efficiencies the next step is to engage in collaborative financial supply chain management strategies that can benefit the whole supply chain.

Talouskriisin vaikutus suomalaisten metsäteollisuusyritysten kannattavuuteen ja vakavaraisuuteen

Tässä kandidaatintyössä tutkitaan, kuinka vuonna 2008 alkanut maailmanlaajuinen talouskriisi on vaikuttanut suomalaisten metsäteollisuusyhtiöiden kannattavuuteen ja vakavaraisuuteen ja näiden valossa pohtia suomalaisen metsäteollisuuden tulevaisuudennäkymiä, mahdollisuuksia ja uhkia.

Identification of research trends in the field of separation processes. Application of epidemiological model, citation analysis, text mining, and technical analysis of the financial markets

Choice of industrial development options and the relevant allocation of the research funds become more and more difficult because of the increasing R&D costs and pressure for shorter development period. Forecast of the research progress is based on the analysis of the publications activity in the field of interest as well as on the dynamics of its change. Moreover, allocation of funds is hindered by exponential growth in the number of publications and patents. Thematic clusters become more and more difficult to identify, and their evolution hard to follow. The existing approaches of research field structuring and identification of its development are very limited. They do not identify the thematic clusters with adequate precision while the identified trends are often ambiguous. Therefore, there is a clear need to develop methods and tools, which are able to identify developing fields of research. The main objective of this Thesis is to develop tools and methods helping in the identification of the promising research topics in the field of separation processes. Two structuring methods as well as three approaches for identification of the development trends have been proposed. The proposed methods have been applied to the analysis of the research on distillation and filtration. The results show that the developed methods are universal and could be used to study of the various fields of research. The identified thematic clusters and the forecasted trends of their development have been confirmed in almost all tested cases. It proves the universality of the proposed methods. The results allow for identification of the fast-growing scientific fields as well as the topics characterized by stagnant or diminishing research activity.

Service Productization and Product Servitization in The Contract Manufacturing Company

The role of contract manufacturing and subcontracting has been seen in black and white in product and service point of view. It used to be seen either as a product or a service. In the thesis product-service system, offering combining products and services, was discussed. Theory was created from two perspectives; Service productization via Business Model generation and product servitization via New Service Development process. Target for the case study was to point out new ways of service thinking and ways for changing business environment in contract manufacturing, especially in customer satisfaction and profitability point of view. The case study is following the New Service Development process phases. First ideas were collected from literature and via sales management interviews. Service offering and tool for service requirement evaluation was created. Last financial results of example service scenarios were calculated. It is recommended to take service offering into internal use and further develop it into modular service model. It is also recommended to take created customer service requirement evaluation tool into use for capturing customer service needs but also for communicating those internally.

Modelling flexible asset management in industrial maintenance companies and networks

The tightening competition and increasing dynamism have created an emerging need for flexible asset management. This means that the changes of market demand should be responded to with adjustments in the amount of assets tied to the balance sheets of companies. On the other hand, industrial maintenance has recently experienced drastic changes, which have led to an increase in the number of maintenance networks (consisting of customer companies that buy maintenance services, as well as various supplier companies) and inter-organizational partnerships. However, the research on maintenance networks has not followed the changes in the industry. Instead, there is a growing need for new ways of collaboration between partnering companies to enhance the competitiveness of the whole maintenance network. In addition, it is more and more common for companies to pursue lean operations in their businesses. This thesis shows how flexible asset management can increase the profitability of maintenance companies and networks under dynamic operating conditions, and how the additional value can then be shared between the network partners. Firstly, I have conducted a systematic literature review to identify what kind of requirements for asset management models are set by the increasing dynamism. Then I have responded to these requirements by constructing an analytical model for flexible asset management, linking asset management to the profitability and financial state of a company. The thesis uses the model to show how flexible asset management can increase profitability in maintenance companies and networks, and how the created value can be shared in the networks to reach a win-win situation. The research indicates that the existing models for asset management are heterogeneous by nature due to the various definitions of ‘asset management’. I conclude that there is a need for practical asset management models which address assets comprehensively with an inter-organizational, strategic view. The comprehensive perspective, taking all kinds of asset types into account, is needed to integrate the research on asset management with the strategic management of companies and networks. I will show that maintenance companies can improve their profitability by increasing the flexibility of their assets. In maintenance networks, reorganizing the ownership of the assets among the different network partners can create additional value. Finally, I will introduce flexible asset management contracts for maintenance networks. These contracts address the value sharing related to reorganizing the ownership of assets according to the principles of win-win situations.

Profitability planning of the ski resort project

Objective of this master’s thesis is to create an investment calculation model, which makes it possible to determine if the ski resort business can be profitable. The ultimate goal is to create a description with the help of theoretical knowledge, interviews and investment calculation model, how the operation of ski resort is possible to be profitable and what are the critical success factors for achieving this goal. Thesis is carried out as qualitative research, which is supported by the necessary constructive information utilizing calculations. The client company has provided valuable insights and material for this thesis. Theoretical report examines the steps of developing a business plan, investment components and methods as well as sensitivity analysis. The theoretical part is based on the articles, textbooks, interviews and researches. The empirical part of the thesis is assembled by benchmarking other same size Finnish ski resorts, conducting interviews and using investment calculation model. The empirical part provides comprehensive information about ski resort industry, the future of the project, the business plan and the profitability calculations. As the result of this thesis the investment calculation model, which makes it possible to simulate different scenarios for ski resort project, was formed. The model was used to create a picture in which kind of scenario the ski resort business would be profitable and what are the critical success factors in achieving this aim.

Analysis of corporate social responsibility (CSR) performance and financial performance of selected mining companies

The global concern about sustainability has been growing and the mining industry is questioned about its environmental and social performance. Corporate social responsibility (CSR) is an important issue for the extractive industries. The main objective of this study was to investigate the relationship between CSR performance and financial performance of selected mining companies. The study was conducted by identifying and comparing a selection of available CSR performance indicators with financial performance indicators. Based on the result of the study, the relationship between CSR performance and financial performance is unclear for the selected group of companies. The result is mixed and no industry specific realistic way to measure CSR performance uniformly is available. The result as a whole is contradictory and varies at company level as well as based on the selected indicators. The result of this study confirms that the relationship between CSR performance and financial performance is complicated and difficult to determine. As an outcome, evaluation of benefits of CSR in the mining sector could better be analyzed based on different attributes.

Kannattavuuden arviointi ja kehittäminen elementtiliiketoiminnassa

Kirjallisuus tukee näkemystä hyvän kannattavuuden positiivisesta merkityksestä yritykselle. Näin sen merkitystä ei voida sivuuttaa menestystekijänä yrityksen kilpailukyvylle ja jatkuvuudelle. Tutkimuksen case-organisaatiossa kannattavuus on ollut heikko jo kolmella viimeisellä tilikaudella. Pitkään jatkuessaan heikko kannattavuus voi johtaa taloudellisiin ongelmiin, joten olisi löydettävä keinot kääntää tulos jälleen positiiviseksi. Tutkimuksen tavoitteina on tutkia mitä kannattavuus on, miten sitä voidaan mitata ja arvioida sekä mitä keinoja on parantaa kannattavuutta. Lisäksi tutkitaan miten soveltaa näitä teoriapohjaisia keinoja tutkimuksen case-organisaatiossa sen kannattavuuden analysoinnin sekä parantamisen kontekstissa. Tutkimuksen teoria aineisto kerätään kannattavuutta käsittelevästä kirjallisuudesta. Empiirinen tutkimus suoritetaan case-organisaation tuottamaa informaatiota hyödyntäen, kyselytutkimuksella sekä tutkijan havainnoin n.12 vuoden ajalta case-organisaation palveluksessa. Kirjallisuus esittää useamman tavan kannattavuuden parantamiseen. Kaikki esitetyt tavat eivät sellaisinaan sovellu case-organisaation kannattavuuden parantamiseen. Tutkimus esittää toiminnan luonteen ja toimintaympäristön huomioiden mahdollisia sopivia keinoja kehittää kannattavuutta.

The Use of Data Envelopment Analysis as Equity Portfolio Selection Criterion in the Finnish Stock Market

This thesis examines the application of data envelopment analysis as an equity portfolio selection criterion in the Finnish stock market during period 2001-2011. A sample of publicly traded firms in the Helsinki Stock Exchange is examined in this thesis. The sample covers the majority of the publicly traded firms in the Helsinki Stock Exchange. Data envelopment analysis is used to determine the efficiency of firms using a set of input and output financial parameters. The set of financial parameters consist of asset utilization, liquidity, capital structure, growth, valuation and profitability measures. The firms are divided into artificial industry categories, because of the industry-specific nature of the input and output parameters. Comparable portfolios are formed inside the industry category according to the efficiency scores given by the DEA and the performance of the portfolios is evaluated with several measures. The empirical evidence of this thesis suggests that with certain limitations, data envelopment analysis can successfully be used as portfolio selection criterion in the Finnish stock market when the portfolios are rebalanced at annual frequency according to the efficiency scores given by the data envelopment analysis. However, when the portfolios were rebalanced every two or three years, the results are mixed and inconclusive.