Sagan 1955

This paper is conceivably the first theoretic paper on working capital management that laid
emphasis on the necessity for administration of working capital financial records and cautioned that
it can extremely shake the well-being of the concern. He understood the necessity to form up a
philosophy of working capital administration. Sagan indicated out the money supervisors processes
were mainly in the extent of cash flows produced in the way of business transactions. Nevertheless,
money supervisor must be accustomed with whatever is being done with the governor of stocks,
receivables and payables because all these account affect cash situation. Therefore, Sagan focused
mostly on cash section of working capital. Sagan specified that the job of money supervisor was to
provide resources as and when required and to devote provisionally excess funds as lucratively as
conceivable in opinion of his specific necessities of security and liquidness of funds by scrutinizing
the risks and returns of numerous investment opportunities. He recommended that money
supervisor should take his verdicts on the base of cash budget and current assets locus rather than
on the base of old-style working capital ratios. This is significant because effective money supervisor
can evade using from outside even when his net working capital point is little. The study points out
that there was a necessity to recover the collection of funds but it stayed silent about the way of
doing it.

Walker in his study (1964)
He made a made new effort to develop a theory on working capital management by testing his
three propositions based on risk return trade off working capital. He studied the impact of change in
the level of working capital in nine industries and found out the relationship between the level of
working capital and rate of return to be negative. Based on this he developed 3 propositions:
According to him if a firm wants to reduce its risk to a minimum level it should make use of only
equity capital to finance its working capital. By doing so the firms lose out on opportunities for
higher profits on equity capital as they would make no use of leverage.
The kind of capital (debt and equity ) used for financing working capital affects the degree of
risk directly that will be faced by a firm as well as the prospects for profit and loss.
More the difference between the maturities of a firms debt tools and flow of funds caused
internally greater is the risk and vice-versa.
Hence, walker tried to give his theory based upon these three propositions.
Weston and Brigham (1972)
His theory on working capital management was an extension of walker. His view was that debt
should be distributed as short term debt and long term debt. According to him short term debt
should be used as their use would lower the average cost of capital. Both of them further suggested
that current assets should be expanded till a point where marginal returns on increase in assets will
be equal to the cost of capital required to finance it.

Vanhorne in his study (1969)
Realising the lack of theory on working capital vanhorne came up with his theory in which presented
risk return trade off in a new way by considering the variables probastically. He developed a
framework of probalistic cash budget and proposed calculation of different forecasted liquid asset
requirements along with their subjective probabilities under different possible assumptions of sales,
receivables, payables and other related receipts and disbursements. He suggested preparing a
schedule showing, under each alternative of debt maturity, probability distributions of liquid asset
balances for future periods, opportunity cost, maximum probability of running out of cash and
number of future periods in which there was a chance of cash stock-out. Once the risk and
opportunity cost for different alternatives were estimated, the form could determine the best
alternative by balancing the risk of running out of cash against the cost of providing a solution to
avoid such a possibility depending on managements risk tolerance limits, the usefulness of the
framework suggested by Vanhorne is limited because of the difficulties in obtaining information
about the probability distributions of liquid-asset balances, the opportunity cost and the probability
of running out of cash for different alternative of debt maturities.
Welter, in his study (1970)
stated that working capital originated because of the global delay between the moment
expenditure for purchase of raw material was made and the moment when payment were received
for the sale of finished product. Delay centres are located throughout the production and marketing
functions. The study requires specifying the delay centres and working capital tied up in each delay
centre with the help of information regarding average delay and added value. He recognized that by
more rapid and precise information through computers and improved professional ability of
management, saving through reduction of working capital could be possible by reducing the length
of global delay by rescuing and/or favourable redistribution of this global delay among the different
delay centres. However, better information and improved staff involve cost. Therefore, savings
through reduction of working capital should be tried till these saving are greater or equal to the cost
of these savings. Thus, this study is concerned only with return aspect of working capital
management ignoring risk. Enterprises, following this approach, can adversely affect its short-term
liquidity position in an attempt to achieve saving through reduction of working capital. Thus, firms
should be conscious of the effect of law current assets on its ability to pay-off current liabilities.
Moreover, this approach concentrated only on total amount of current assets ignoring the
interactions between current assets and current liabilities.Lambrix and Singhvi (1979) The theory
suggested by lambrix and singhvi says that for working capital management the working capital cycle
approach can be adopted. By reducing the time frame from receipt of raw materials to the shipment
of goods investment in working capital can be optimized. Further they suggested that improvement
can be made by improving the terms of credit on which goods are bought and by eliminating the
administrative delays. Warren and Shelton (1971) they applied financial simulation to forecast
future financial statements of a firm. This kind of simulation makes it possible to include
uncertainties and many interrelationships that exist in the balance sheet accounts. Both of the
researchers made use of twenty simultaneous equations to forecast the future balance sheet of the
firm which included the forecast of current assets and current liabilities. Even working capital
accounts can be forecasted in a larger simulation system.