The scientific objective of the project is to develop a method of selecting a target liquidity level in an enterprise, which is closest to the optimum, depending on the sector/industry of the enterprise’s activity, individual features of the enterprise in comparison with other entities in the sector/industry, and overall conditions. The optimum liquidity level depends on how beneficial maintaining a specified liquidity level is, against which threats the freezing of funds in liquid assets can protect, and what chances are going to occur thanks to that. Those elements, in the author’s opinion, influence the target liquidity level, and their impact depends on the type of business, the individual features of the enterprise compared with other enterprises from the business environment, and overall conditions.

This problem needs to be addressed since the financial liquidity level in enterprises is of key significance for the safe pursuit of activity. While making a choice between the possible levels of resource commitment to the enterprise’s financial liquidity, the enterprise chooses both between the anticipated levels of benefits from the given type of investment and the specified levels of threat for the accomplishment of the anticipated results, which are a consequence of differing risk levels accompanying those choices. The risk level is accepted by investors (owners and creditors of the enterprise) in exchange for a certain “promise” of consideration reflected in the anticipated rate of return of the capital committed in the enterprise. For the enterprise, the said rate of return will be a rate of the so-called enterprise financing cost of capital. This correlation results in a relation between the risk accompanying the anticipated benefits from the choice of the strategy of investing in financial liquidity and the resultant changes in the enterprise financing cost of capital. The enterprise financing liquidity cost depends on the risk associated with the strategy of financing and/or investing in financial liquidity adopted by the enterprise. A higher risk should be accompanied by a higher financing cost (higher rate of cost of capital) and thereby it should contribute to changes in the anticipated goodwill. The current asset investment financing cost of capital depends on the type of financing, the level of investment in financial liquidity in relation to the anticipated sales revenue, and the risk exposure of capital suppliers.

A considerable group of enterprises are threatened by bankruptcy or go bankrupt not because they experience profitability problems, have no idea for a business, but because they maintain their liquidity at an insufficient level. Another group of enterprises, in turn, maintain liquidity at an unreasonable level, thereby undermining the profitability of their undertakings. As a result of the research so far, the applicant managed to find a trace of a solution to this problem, hence the idea for the implementation of the project applied for.

The importance of the project results for the development of enterprise finance as to the problems related to liquidity management is great. In the case of positive results, enterprises will be able to find a practical solution, after the management staff accommodate the guidelines of the solution proposed by the applicant.

The solution to this problem will make an original contribution to the achievements of the enterprise finance management within the scope of financial liquidity management in Poland and abroad in the form of a method of conduct aiming at setting a target (closest to the optimum) level of commitment of enterprise funds in financial liquidity. This is a continued problem, not a new one, yet still needs to be solved. The implementation of the project or such a solution will provide or make a considerable step towards bringing the financial liquidity management environment closer to finding thereof.

The approach to financing current assets and to investing therein may be associated with the phenomenon of a certain risk exposure contingent on the selected approach. Such exposure depends above all on the position of the enterprises in its sector/industry and on the sector/industry itself, in which the enterprise implementing the given approach to financing current assets and to investing therein operates.

In cases where the aforementioned risk exposure is higher and results of the enterprise are to a greater extent contingent on the impact of this risk, more flexible and more conservative approaches should be taken into account in order to achieve a greater increment of goodwill. This correlation should probably occur also in the opposite direction: enterprises operating in safer sectors, with positions close to monopolistic, may apply more restrictive and aggressive strategies without hesitation in order to achieve better results which lead to a greater increment of goodwill.

Detailed research goals are supposed to separate the manner of impact of individual components of the liquidity level in the enterprise on the enterprise effectiveness, and as a consequence permit forming principles which enable finding a recommended manner of conduct as to the determination of the target financial liquidity level.

The overall research plan contains first of all the discussion on investing in financial liquidity as a factor shaping the enterprise liquidity. Secondly, the subject of research is the role of the management of provisions (materials and commodities for production, work in progress and finished goods) in creating goodwill. The subsequent stage of research will be devoted to the decisions as to management of receivables which create goodwill. The last stage will deal with the influence of the operating cash level on goodwill.

The set goals will be accomplished based on global research presented on international conferences and published in the enterprise finance literature. The conclusions from the exchange of opinions with the most active finance scholars will be supported by conclusions from databases, which will be purchased or created by the applicant. The results of the preliminary research indicating the appropriateness of the adopted assumptions are encouraging. The idea presented for implementation, which is likely to be implemented thanks to the project, has been discussed on several international research conferences and during several meetings of international finance scholars outside conferences.

During the implementation of the subject, an attempt will be made to create a general model of reaching the target level of financial liquidity and financial liquidity management in an enterprise. The discovered correlations will be subject to verification by comparing them with the opinions presented in the global financial liquidity management literature, obtained from enterprise managers during interviews, and with the financial data presented by enterprises operating both in Poland and abroad.

The following research methods will be employed:

– free interview (conducted with several dozen representatives of persons participating in financial liquidity management), its aim is to understand what type of financial liquidity management tools in a given type of enterprise will be useful, what type of operating risk occurs in a given type of enterprise or which type of risk is feared most by the managers; the selection of the free interview results from the applicant’s being aware of various needs related to the enterprise financial liquidity management;

– non-explicit and non-participating observation (both in relation to enterprises embraced and not embraced in the interview) based on press releases, published financial reports, information from services containing data on enterprises and their customs as to liquidity management, etc.,

– comparative method, which will be employed in order to verify the worked out financial liquidity management method in enterprises of one sector/industry by comparing with enterprises of other sectors/industries,

– intuitive method, used basically all the time while interpreting the interview results and transforming them into the model of determining the target level of liquidity in the enterprise and financial liquidity management in enterprises.

For the purpose of compiling the research results a portable computer set with a multi-purpose printer will be useful, the purchase whereof is planned as part of this project.

The outcome will be the results of the conducted research, the constructed financial liquidity management tools constructed based thereon, and the proposal of a model of determining the target level of financial liquidity in an enterprise and of financial liquidity management. Those results will be disseminated by scientific publications and speeches on conferences in Poland and abroad. Based on the project results, also a lecture offered both in Polish and in English will be prepared. The new method of reaching the optimum level of liquidity in an enterprise and financial liquidity management will be presented also on post-graduate studies, trainings and within consulting services provided to enterprise finance management practitioners. The results obtained while implementing the project are likely to contribute to a better understanding of the financial liquidity management model in any institutions managing liquidity, which also may be reflected in publications, conference speeches, contents being a subject of lectures at universities and presented during consulting and training projects which modify the current perception and model of financial liquidity management in such institutions.




Scientific objective of the project is to develop method of selecting the target and the nearest optimum, level of liquidity in the company. That level depends on the industry of business activities, individual characteristics of the business in comparison with other actors in the industry and the general economic conditions. The optimal level of liquidity depends on how far it is advantageous to maintain a certain level of liquidity risks facing cost of holding tied funds in liquid assets. These elements according to the author of the project affect the target level of liquidity and their power of influence depends on the type of business, the individual characteristics of the business against other companies in the industry environment and general economic conditions.

The problem therefore requires that the level of liquidity in enterprises is of crucial importance for the business security. The managers making the choice between possible levels of the liquidity, chooses both between levels of expected benefits of the type of investment as well as between certain levels of risk to achieve the expected results being the result of different levels of risk surrounding that choice.

The risk level is accepted by the investors (owners and creditors of the company) when they believe that is possible to earn adequate level of return from investment.

Risk sensitivity depends on position of the firm in its business branch. If the risk sensitivity should be higher, then more smart is to choose more flexible and more conservative solutions to have better results. It works in opposite direction also, the safe firms with near to monopoly positions can use more restrictive and more aggressive strategies to have better results.

Company’s property consists of total assets, i.e. fixed assets and current assets known also as liquid assets. We can see that property as fixed capital and liquid assets also. Generally liquid assets equal to current assets is defined as a sum of inventory, short term receivables (including all the accounts receivable for deliveries and services regardless of the maturity date) and short-term investments (cash and its equivalents) as well as short-term prepaid expenses. Money tied in liquid assets serve enterprise as protection against risk but that money also are considered as an investment. It is because the firm resigns from instant utilization of resources for future benefits.

Liquid assets level is the effect of processes linked to the production organization or services realization. So, it results from the processes that are operational by nature and therefore correspond to the willingness to produce on time products and services that are probably desired by customers. It exerts influence mainly on the inventory level and belongs to the area of interest of operational management. Nevertheless, liquidity level is also the result of active customer winning and maintaining policy. Such policy is executed by finding an offer and a specific market where the product or service is sold. This policy consequences are reflected in the final products inventory level and accounts receivable in short term.

Among the motivating factors for investing in current assets, one may also mention uncertainty and risk. Due to uncertainty and risk, it is necessary to stock up circumspect (cautionary) cash, material and resources reserves that are inevitable in maintaining the continuity of production and producing final goods.

Many firms act in a fast changing environment where the prices of needed materials and resources are subject to constant change. Other factors – like exchange rates for instance, are very changeable, too. It justifies keeping additional cash sources allotted for realization of built-in call options (American type) by buying the raw materials more cheap than the long term expected equilibrium price would suggest.

Company’s relationships with suppliers of materials, resources and services that are necessary to produce and sell final products usually result in adjourning the payments. Such situation creates Accounts payable and employees (who are to some extent internal services providers). Similarly, enterprise charged with obligatory payments will eventually face tax burdens. Required payments postponement exerts impact on reducing the demand for these company’s resources that are engaged in current asset financing. Current assets reduced by non financial current obligations (non financial short term obligations) are called net current assets. Level of liquidity is investment of a company in current assets equated with the capital tied in these assets.

Solution of a basic problem will make an original contribution to the way of financial liquidity management. The result will be the procedure of determination of the target (the nearest to the optimal) level of financial liquidity. That is not a new but a continuing problem, but still requires a better solution. Implementation of the project results will provide such a solution or will make a significant step towards closer financial liquidity management for the businesses.

Depending on the business type that the given enterprise is doing, sensibility to liquid assets financing method risk might vary a lot. Character of business also determines the best strategy that should be chosen whether it will be the conservative strategy or aggressive one or maybe some of the transitional variants similar to the compromise strategy. The best choice is that with the adequate cost of financing and highest enterprise value growth. This depends on the structure of financing costs. The lower the financing cost, the higher effectiveness of enterprises activity measured by the growth of its value. The firm choosing between various solutions in liquid assets needs to decide what level of risk is acceptable for her owners and capital suppliers. If the risk exposition is higher, should be preferred more safe solution. That choice results with cost of financing consequences. Relation between risk and expected benefits from the liquid assets decision and its results on financing costs for the firm decide about target choice.

Specific research goal of the grant is to find a way to extract the impact of the various elements making up the level of liquidity in the company on the business efficiency. Thanks to that findings is possible the determination of the principles of decisions about a recommended target level of liquidity.

The objectives will be implemented based on worldwide research presented at international conferences and published in the literature on corporate finance. Conclusions resulting from the exchange of views with the most active researchers in the field of finance will be supported by findings from the databases that will be purchased or self produced during the grant realization.



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