Creating value through working capital
Unlocking cash in a digital age
excess working capital tied up on global balance sheets
in Days Payables Outstanding
in global Working Capital
sectors have improved working capital
In the face of rapidly-changing business models and disruption, cash and working capital are fundamentals that businesses can easily lose sight of. Harnessing the power of digital presents a singular opportunity to take back control, addressing the challenges presented by organisational silos, complex systems and conflicting targets.
Companies that are able to exploit digital’s benefits will lead the way in unlocking cash and creating more value. Digital enablers are now sufficiently accessible and flexible that they should be a standard tool for accelerating working capital improvement.
Explore our report to find out how you can create value through working capital.
Looking at the financial performance of the largest global listed companies in the past five years, we have noticed five key trends:
1. Working Capital is the next value driver
Improvements in returns have mostly come through EBIT. Some of the value created has, however, been offset by stalling NWC performance, restraining the improvement in ROIC. Addressing excess working capital would lift overall ROIC by up to 30bps (basis points).
2. Working Capital is finally improving
While net working capital increased by €360bn in 2018 (up 9.4% on 2017), relative performance in terms of days has improved marginally by 0.1 days.
3. As predicted, Payables Days have been unsustainable
For the second successive year we have seen a decrease in Days Payable Outstanding (DPO), underlining that the use of DPO as a quick fix is no longer a sustainable working capital management strategy.
4. Receivables and Inventory are major sources of opportunity
Companies have finally started to achieve significant improvements in both DSO and DIO. This has been much needed in light of the downward pressure on DPO. DSO has shown its first improvement in five years as companies have begun to tap into the asset side of the balance sheet.
5. The need for cash is increasing
While revenues are up 10% on last year, this year we’ve seen operating cash flows (OCF) decline as a proportion of sales. Companies are facing operational challenges in converting revenue into cash. During the same period, CAPEX (as a percentage of revenues) has continued to decline, which could suggest that companies are managing cash levels by limiting investment.
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