Working Capital Report 2019/20
Creating value through working capital
Unlocking cash in a digital age
Why it matters
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.
What's the story?
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.
Key findings
Globally, our research has revealed an absolute increase in net working capital (NWC) of €360bn in 2018 (up 9.4% on 2017).
In relative terms, however, NWC days have improved for the first time in five years — which suggests companies are waking up to the challenge.
Find out more here
At a time of digital disruption, ongoing convergence between industries and dramatic shifts in business models, companies’ ability to create value has never been more important.
Working capital presents a value creation opportunity not only in “business as usual” circumstances but also in a deal environment. Our analysis suggests that more can be done to boost Return on Invested Capital (ROIC) through working capital management.
Explore how you can create value through working capital
When we analyse how sector performance has evolved in the past year, we find large disparities
In fact only eight sectors out of 18 are showing an improvement from 2018.
While sector-level trends give us an indication of the challenges facing certain industries, there are wide variations in performance between different companies within each sector. We’ve broken this down further in our report:
See here for more industry insights
Digital technologies have been a driver of innovation and transformation for many aspects of business.
Harnessing the power of technologies such as data analytics, artificial intelligence (AI) and robotic process automation (RPA) is also becoming increasingly central to the optimisation of working capital. In our report we explore a number of areas that need to be on the working capital agenda to drive optimal performance:
Explore how to unlock cash in the digital age
In an increasingly turbulent global trading environment, regional difference in working capital performance persists.
As we saw in last year's study, the continued impact and weighting of the Asian market also marks a shift in the centre of gravity in regards to working capital.
Discover more about international trends in working capitalHow we can help
We help our clients to:
- identify and realise cash and cost benefits across the end-to-end value chain
- optimise operational processes that underpin the working capital cycle
- implement digital working capital solutions and data analytics
- achieve rapid cash conservation in crisis situations
- create a 'cash culture' and upskill the organisation through our working capital academy
- roll-out trade and supply chain financing solutions.
