This article aims to locate the development of research on the management of working capital in the different periods of historical evolution of finance.
At first, the definition of working capital is made, delving into its two fundamental directions, and second, the development of research related to working capital in the aforementioned branch of economic sciences is identified.
Development
Over time, researchers have identified concepts that have been gradually incorporated into business working capital, such as: liquidity and cash flow.
To adequately address the elements related to the emergence and development of research on working capital, it is necessary to present its definition, as a terminology to follow, since innumerable researchers are dedicated to the study of operational financial management, referring particularly to the analysis of working capital, which has also been called by some authors as: working capital, working capital, net working capital, resource or net rotation fund and net cash. Likewise, the criteria of the specialists on the definition of the term are different, observing a homogeneity. These authors include: L. Gitman (1986); J. Tracy (1993); F. Weston and E. Brigham (1994); Maighs (1995); L. Bernstein (1997); Van Horne and Wachowicz (1997); R.Brealey (1998); O. Amat (1998); G. Guajardo (1999); R. Kennedy (1999); E. Santandreu (2000); Mateu (2000); A. Demestre (2002); CA León (2003); W. Silva (2004); A. Blanco (2004); G. Gómez (2004); R. Arévalo (2004) and F. Munilla et al., (2005).
An analysis of the definitions offered by these authors shows that the term working capital has been used by accountants, administrators and researchers in general, in two directions: the first qualitative or static and the second quantitative or dynamic, according to the criteria of R. Kennedy (1999) and E. Santandreu (2000).
The first definition is used in a general way, to refer to the surplus of current assets over current liabilities. This means that working capital is the amount of current assets that has been supplied by long-term creditors and by shareholders, or equivalently, which has not been supplied by short-term creditors. Among the authors who defend the above are: L. Gitman (1986); J. Tracy (1993); F. Weston and E. Brigham (1994); Maighs (1995); L. Bernstein (1997); R. Brealey (1998); O. Amat (1998); Mateu (2000); A. Demestre et al. (2002); CA León (2003); W. Silva (2004); A. Blanco (2004); G. Gómez (2004); R. Arévalo (2004) and F. Munilla et al. (2005).
Some of the interpretations associated with this definition indicate: the extent to which the company solves its liquidity problems and the resources with which it attends its operational and financial activities, without having to resort to extraordinary funds.
Liquidity refers to the ability that a company acquires to have availability of assets that are easily converted into cash, reaffirming its ability to cover its short-term financial obligations in a timely manner and without delay (E. Gómez, 2004).
The second definition is used to refer to current assets, which defines working capital as the investment made in short-term assets. Among the defenders of the foregoing are: F. Weston and E. Brigham (1994); G. Guajardo (1999); CA León (2003) and W. Silva (2004). This definition makes sense, inasmuch as it explains the administrative interest in attending to the current investment provided - the total amount of resources used in normal operations, and its correct levels (Van Horne and Wachowicz, 1997).
Figure 1: Concept of working capital received in the development of the article.
Source: Espinosa, Daisy. Proposal for a procedure for the analysis of working capital. Hotel case. Thesis presented as an option to the scientific degree of Master in Economic Sciences, directed by Dr. Nury Hernández de Alba Álvarez. University of Matanzas, 2005.
In the course of this investigation, in order to identify the development of investigations related to the analysis of working capital in the different periods of historical evolution of Finance and to present its theoretical and conceptual foundations, it will be understood as such and in a general way., to the investment in the levels of current assets and the financing that is needed to sustain it. Graphically this global definition is observed in Figure 1.
Having defined the term working capital, it is important to highlight that from a historical-scientific point of view, finance was long considered part of the economy, but emerged as an independent field of study in the 20th century, given the the need to respond to the crisis associated with the World War and its effects on the economies.
From the above and as seen in Figure 2, four fundamental stages in the evolution of finance can be identified:
- 1 was stage: Classic model of corporate finance (1939).2 da stage: Foundations of modern finance theory (1940 to 1970).3 ra stage: Development of modern finance theory (1970 to 1990).4 ta stage: globalization of finance (1990 to present).
The first stage in the historical evolution of finance was characterized by virtually non-existent research in this field until the 19th century. In these moments the managers were dedicated to keep the books of the accounts, control the bookkeeping and seek financing when necessary. Beginning in the 19th century and driven by the emergence of the Industrial Revolution in England in the late 18th century, the so-called Classical Model of Economic Theory began to develop, in the hands of the greatest exponents of the schools: English, Vienna, Lausanne and Cambridge. Particular attention is paid in this age of "savage capitalism" to mergers, bond and equity issues, and financial markets.
In the first half of the 20th century, specifically in 1929, an international crisis broke out characterized by an environment of false financial stability and stability, with interest rate increases and loan paralysis. For this reason, studies were carried out aimed at analyzing the economic and financial situation of the company, emphasizing liquidity and growth, or their similarities: survival and development. Elements of modern theory are already beginning to emerge at this time, driving the second stage in the historical evolution of finance.
The second stage, recognized by the foundation of modern finance theory, which began in approximately 1940, is characterized by budgeting and control of capital and treasury, with the use of Operations Research and Informatics as tools. The stage begins with a war economy, where the analysis was perceived as descriptive and institutional, later giving way to an analytical approach.
The studies focused primarily on profitability, growth and international diversification, as well as liquidity and solvency management.
The ideas defended by the researchers of the time were aimed at the importance of the flows or flows of collections and payments, the administration of idle funds, investment decisions and their relationship with financing and the selection of optimal portfolios, deepening in the study of variables related to short-term budgets, which is inserted in the management of current funds.
Figure 2: Historical - scientific evolution of Finance.
Regarding the above, Guthman and Dougall (1940) define commercial finance as the activity related to the planning, raising, control and administration of funds, forming part of the financial function as responsible for analyzing cash flows (Munilla, 2005). Hunt (1943) refers to the functions of entrepreneurs as not only that of assuring the ability to pay, but also the attention to liquidity for the expansion, renewal of capital and the administration of temporarily released funds. Williams (1955) recognizes the uncertainty to which business operations are subjected, so that the needs of budgets and cash plans were maximized.
The third stage in the evolution of finance, which takes place in the period from 1970 to 1990, had as its distinctive feature the promotion of modern theory, with an expansion and deepening of small and medium-sized companies and their role in society. The essential objective of the financiers in the period was focused on maximizing the value of the company. The researchers lend interest to the theories of: agency, dividend policy, option valuation and arbitrage valuation, in an effort to achieve the basic objective, increasing the application of advances in information and communications, which gave way to a higher stage.
The fourth stage that as a distinctive element presents a new company or "virtual company", is characterized by the globalization of finance, with speculative excesses, volatility in interest rates and inflation, variability of exchange rates, global economic uncertainty and ethical problems in financial business.
At this stage, finance is presented as a vital and strategic function of the company, where the mathematical or quantitative one stands out as a research program, as a tool to achieve integrated management in the short term, with an interrelated vision of investment and financing decisions. in the short and long term. In the 21st century, called the Knowledge Age, the needs for information and techniques to provide it grow, with the telecommunications sector playing a fundamental role in this regard in the development of tools that facilitate this process.
Conclusions
In summary, the study of finance evolved from the descriptive study of its first stage, to current normative theories and rigorous analyzes. These have ceased to be a field primarily concerned with raising funds to encompass asset management, capital allocation, and business valuation in a global market, emphasizing advances in computing and the development of communication networks.
The analysis of current funds and their implications on the risk and profitability of companies, as well as in society, is an element present at all stages of the development and historical evolution of finance, which is summarized in financial management. operational, a function that in the future will be a mixture of science and art of finance, combining the accuracy of statistical techniques and operations research.
Bibliography
- Amat, Oriol. Analysis of Financial Statements: fundamentals and applications. Ediciones Gestión 2000. 5th Edition. Spain, 1998.Amat, O. Understanding Accounting and Finance. Ediciones Gestión 2000. 1st Edition. Spain, 1998.Bernstein, L. Foundations of financial analysis. McGraw Hill Editor. 4th Edition. Spain, 1997. Blanco, A. Management of working capital: a diagnosis of its application. Diploma thesis directed by Lic. D. Espinosa, 2004.Brealey, R. and Myers, S. Principles of Corporate Finance. Mc Graw Hill. 2nd Edition. Madrid 1998. Demestre, A et al. Techniques to analyze financial statements. Publicentro Editorial. 2nd Edition. Havana, 2002. Demestre, A et al. Financial culture: a business need. Publicentro edition. 1st Edition. La Habana, 2003.Fat, JA The business financial administration.Consulted in March 2005. Available at:
www.universidadabierta.edu.mx/Biblio/F/Fat%20Jose-Admon%20financiera.htmFat, JA Relationship of finances with the basic functions of the company. Consulted in May 2005. Available at: http://www.universidadabierta.edu.mx/Biblio/F/Fat%20Jose-Relac%20finan.htmGitman, L. Fundamentals of Financial Administration. Special edition. Ministry of Higher Education. Cuba, 1986.Guajardo, G. Financial Accounting. McGraw Hill Editor. 2nd Edition. Mexico, 1999. Kennedy, R. Financial Statements: Forms, analysis and interpretation. Editorial Limusa. 7th Edition. México, 1999. León, CA Construction of a statement of flows. Consulted in September 2005. Available at: http://www.temasdeclase.com/libros%20gratis/cambios/capuno/flujos1_1.htmMaighs. Accounting. The basis for managerial decisions. Mac Graw Hill Publishing. 8th Edition. Mexico, 1995.Mateu, J. et al. ABC of Accounting and Finance. Ediciones Gestión 2000. Munilla, F. et al. Dynamics of the Origin and Application of Funds in Liquidity Management. CONTHABANA International Event 2005. Havana, 2005. Main periods in the history of Finance. Consulted in January 2005. Available at:
ciberconta.unizar.es/leccion/fin016/200.htmSantandreu, E. Management of business financing. Ediciones Gestión 2000. Spain, 2000.Van Horne, Wachowicz. Fundamentals of financial administration. 8th edition. Prentice Hall Hispanoamericana. 1997. Weston, F. and E. Brigham. Fundamentals of Financial Administration. McGraw Hill Publishing. 10th Edition. Spain, 1994. Weston, F and T. Copeland. Administration finance. McGraw Hill Publishing. 9th Edition. Mexico, 1995.
In English-speaking literature this term is known as: management of net working capital.
Regarding this definition, the site monographs.com issued a criticism arguing that when defining Working Capital using short-term assets and liabilities, it would give the impression that it is affected by daily transactions, while it is crucial to recognize that the Capital of Work is the net financial impact of a long-term policy. Working Capital does not change every day, it just depends on the company's strategy regarding its long-term decisions. All of the above fully agrees with what was argued by Van Horne and Wachowicz (1997) when they explain that administratively it is not relevant to manage a difference between current assets and liabilities, since it is continuously changing.
Maximizing the value of the company has been a controversial goal with that of maximizing profits. Some authors are advocates of the latter, however, there have been many criticisms in this regard, arguing that the goal of maximizing profits: 1) is a short-term consideration, 2) does not take into account risk, 3) can cause the decrease in the share price and 4) does not specify the duration of the expected returns. The maximization of the value of the company, therefore, is a long-term strategy that includes the objective of maximizing profits and corrects the previous deficiencies, pointing out how well the administration is developing, which is why it is recognized as the goal of the company and the financial manager.
Agency Theory is a branch of economics that investigates possible conflicts of behavior, relationships and interests in which capital owners and managers or administrators are involved and how companies try to overcome these conflicts.
The Dividend Policy is an integral part of the company's financing decisions and investigates the proper distribution of profits between dividend payments to shareholders and additions to retained earnings for business financing.
An option is a contract by which a person acquires the right to buy (call option) or sell (put option) an asset at a set execution price.
Arbitration is the purchase and sale in markets of similar assets, over or undervalued, with the objective of obtaining a profit free of risks.
Main periods in the history of Finance. Available at:
Examples of these tools can be mentioned: emails, world wide web, interconnection between computers.
JA Fat. Business financial administration. Available in:
www.universidadabierta.edu.mx
Download the original file
