WORKING CAPITAL MANAGEMENT AND COMPANY VALUE AT HEINZ NORTHERN EUROPE

1. INTRODUCTION


“Show me how a company deals with working capital and I can tell if management really knows what it is doing” (Rutger Ford, REL Consultancy Group).

Working capital management is an area largely lacking in theoretical perspective. One of the reasons is that the idea behind working capital is straightforward. If you minimize the amount tied up in receivables, inventory and maximize the amount tied up in payables, you maximize your cash flow. In reality the decision of how much to invest in working capital is not as straightforward however. Like all financing decisions it involves a risk – return trade-off. This article focuses on the relationship between the investment in working capital and the value of the company. In the first part of this paper we briefly summarize theoretical reasons for the relationship between the investment in working capital and company value. The second part of this paper describes a working capital project that was undertaken at Heinz Northern Europe in 2003. 


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