Circulate Your Idling Assets

This paper aims to study how financial working capital affects profitability. Financial working capital can be defined as current assets and liabilities that are not tied in operational working capital and it therefore presents the liquidity situation of the company. The research in this paper has been conducted using simulation with flexible asset management (FAM) model. The simulations indicate that profitability can be improved by decreasing the cycle time of financial working capital. The effect of the reduction can be intensified by increasing earnings or average depreciation time or decreasing relative amount of fixed assets or the cycle time of operational working capital. The results imply that profitability can be improved with strategic decisions on fixed and current assets. The paper also encourages to use models such as FAM model in the strategic decision making.