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10 Dec 2018

Companies with broad working capital focus also appear to deliver higher profit margin

Thoughts

A global and wide set of companies were studied to identify trends and challenges for the companies supplying the heavy duty industry.
Five main conclusion drawn from the study

High operational performance is crucial to achieve high working capital efficiency

  • Among the companies in the best quartile for total working capital efficiency, all consistently performed in the best quartile for inventory efficiency, DIS*

Receivables- and payables optimization don’t cut it

  • The companies performing best in account receivables, DSO**, and account payables, DPO***; only reached, at best, average total working capital efficiency if they did not focus on DIS.

The companies with the highest profitability all have a broad focus on working capital (figure)

  • The 20% of companies with the highest profit margin (EBIT/Sales) all consistently performed in the best or second best quartile within all three KPI´s (DIS, DPO, DSO)

Privately owned companies perform significantly better working capital efficiency

  • Privately owned companies had on average 39% better working capital efficiency than private equity owned companies, and on average 38% better than listed companies

Companies headquartered in Europe perform better working capital efficiency

  • Companies headquartered in Europe have on average 29% better working capital efficiency than companies headquartered in Asia, and 21% better than companies headquartered in the Americas

*DIS – Days In Stock

**DSO – Days Sales Outstanding

***DPO – Days Payables Outstanding