in manufacturing concerns usually inventory turnover in days, average collection period, average payment period and cash conversion cycle are used as proxy of working capital management. However, how one can calculate such ratios for financial institutions such as banks. Please if someone know any article on bank working capital management then plz mention it with your recommendations.
Very easy.
http://www.investopedia.com/ask/answers/071114/how-do-you-calculate-working-capital.asp
http://beginnersinvest.about.com/od/analyzingabalancesheet/a/working-capital.htm
http://www.myaccountingcourse.com/financial-ratios/working-capital-ratio
Usman
I think you didnt get my point. I want to measure working capital efficiencies in case of banks. In other words i want to calculate cash conversion cycle of banks.
You can't. There is no conversion cash-assets. Banks just intermediate securities between savers and investors (consumers)... so, treasury in banks is a kind of specific subject that, in my vision, is not covered by working capital traditional measures...
Antonio thanks for your views.
If one cannot calculate traditional working capital measures then what specific proxy can be used in this context. I am considering only two ratios of average collection period (While focusing in short term advances) and average payment period (while considering short term loans). What are your views about this?
The conceptual treatment is quite diverse... Ask for literature about Treasury and Financial Instruments... financial management in banking and financial intermediaries.
Banks can not be compared to non-financial companies. The closest ratios you have between financial and non-financial companies are ROE and ROA. Follow the CAMEL (Capital Adequacy, Asset quality, Management quality, Earnings ability, Liquidity risk, Sensitivity to market risk) approach to understand the overall condition of a bank.
My research focus is not to analyze bank overall condition. I want to analyze bank activity and its efficiencies in completing its operating cycle.
Is there a coinceptual operating cycle in banks? It's the first question to propose...
The core of banking activity banking is asset liablity managment. In other words to manage the mismatch between short term fundig (from deposits) and long term lending. This is not the tradicional concept of working capital because on both sides you have short term (deposits) and long term funding (bonds and equity) and short term receivables (standard overdraft facilities) and long term credit (mortagage lenfing). Maybe you should start from the ROA concept and then drill down the components of ROA to assess the several effciency layers of banks. Hope is useful.
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