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A Total Real Asset Planning System

Published online by Cambridge University Press:  19 October 2009

L. J. Merville  and
L. A. Tavis
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Extract

Traditional planning for working capital needs is typically conducted with a relatively short time horizon. In this process, management attempts to optimize the return on existing fixed assets. The period for capital investment planning is much longer, reflecting the irreversibility of these decisions. Current research in the two areas tends to dichotomize these decision processes. The implications seem to be that working capital policies only have impact in the short run. However, it is clear that cash flows for potential capital expenditures are based on assumptions relative to expected future demand and production to meet this demand—assumptions that are necessarily tied to working capital commitments in the long run. The overall planning for credit, inventory, and liquidity should, therefore, be carried out before, or simultaneously with, the capital investment decision. It is a planning requirement that becomes an integral part of the total asset planning system. The vast majority of existing working capital models or long-term capital planning models do not allow for the explicit existence of and the simultaneous interrelationships between these two important subsystems.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 1 , January 1974 , pp. 107 - 115
Copyright
Copyright © School of Business Administration, University of Washington 1974

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References

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