Relation Between Cash Levels and Debt in Small and Medium Wood and Furniture Industry Enterprises with Full Operating Cycle

Cash levels in firm are an real option instrument similar to financial option of American type. They can serve as hedging against risk instrument. Inside debt is a source of financial risk. The debt is higher the risk is higher. We expect that inside debt levels should be in correspondence with cash levels. In case of firms without full operating cycle, level of operational risk is smaller than in forms with full operating cycle and levels of cash plays much more the role of the buffer that hedge against the operational risk. To present and illustrating the ideas of the paper small and medium wood industry enterprises with full operating cycle data is used. The main objective of the research is to verify a model describing the management of the cash levels in small and medium businesses in relation to debt levels. The model describing debt levels in relation to cash management in small or medium enterprises is useful to understand the relationships that occur in the course of making decisions related to the management of operational risk arising from the implementation of the operating cycle of the small enterprise.