Navigating uncertainty
Unlocking cash to shore up your business
Cash is the lifeblood of any company. It’s more important than ever for businesses to optimise this fundamental aspect of financial performance if they’re to maintain a steady course in these uncertain times. Given that working capital is the cheapest source of cash, nothing is more vital than having a cash culture and good liquidity on board.
If all the companies in our study were to improve their working capital efficiency to the level of the next performance quartile, this would represent a cash release of €1.3tr. This would be enough for global companies to boost their capital investment by 55% – without needing to access additional funding or put their cash flows under pressure.
Our study of the financial performance of the largest global listed companies over the past five years indicates that there are four challenges on the horizon:
While revenues are up by 10% on last year, this year we’ve seen a decline in companies’ ability to turn higher revenues into cash.
Capital expenditure (capex) as a percentage of revenues has plummeted during the last five years, suggesting that companies are managing cash flows by cutting investment. In the long run, this will leave companies under-invested, posing a threat to their growth. By optimising working capital, global companies can release the funds needed for continued investment without squeezing their cash flows.
During the recent sustained period of cheap borrowing, the cost of cash may not have presented cause for concern. However, given the current outlook of fiscal tightening and uncertainty around global trade, now is the time for companies to shore up their balance sheets to be ready for all eventualities.
The overall findings on companies’ Net Working Capital (NWC) performance reveal a small improvement this year of 0.4 NWC days. Companies have achieved this by turning the tide on Days Sales Outstanding (DSO) and Days Inventory On-hand (DIO) performance, both of which saw modest improvements of 0.1 and 0.7 days respectively – the first improvement in five years.
Find out how you compare with your peers in our interactive data explorer, with breakdowns by company size, territory and industry.
Find out how you compare with your peers in our interactive data explorer, with breakdowns by company size, territory and industry.
We help our clients to: