Modeling the impact of working capital management on the profitability in industrial maintenance business

Abstract

In this paper, we present an analytical model for flexible asset management, which is a new tool for company decision-making. The model reveals a significant negative correlation between the cycle times of operational working capital and the return on investment. Conventional research on working capital management has mostly focused on manufacturing industries. We show that working capital should be managed actively also in unconventional environments like service industries. The focus is on the industrial maintenance service providers, which still remain somewhat unexplored in academic literature. The importance of working capital management is actually emphasized in this industry, due to its light fixed assets and good profitability. Interestingly, there are some major differences between large enterprises and small and medium size enterprises in the industrial maintenance service sector. These can be explained through economies of scale and the fact that large maintenance service enterprises often focus on providing services mostly for their former host companies.