PwC has conducted a European study analysing trends in working capital management and its link with profitability. It shows how companies can benefit from better working capital management in terms of access to liquidity and cash as well as profitability.
This analysis is based on publicly available financial statements of more than 950 quoted companies. It covers the main countries and industries of Europe.
The first section shows the evolution of working capital levels throughout the 2004-2008 period. It provides benchmarking data across the sectors and countries in scope.
The key findings are:
The second section analyses the impact an improvement in working capital could make on the performance of a company.
It shows that improving the working capital ratio from the median to the upper quartile of an industry could on average generate a 6.5% improvement in RONA. And, in some industries, this could be as much as a 15.6% improvement.
Similarly, improving the cash conversion cycle by only five days is equivalent on average to more than a 2% improvement in net operating profit after tax (NOPAT).
These scenarios clearly support the idea that improved working capital is one of the key levers to increasing bottom-line performance.
We hope this study will help CEOs and CFOs understand the urgent need for focus on working capital now, in these particularly difficult economic times.
If you are interested in a hard copy version of the full study, please fill in the form below.