Unlocking value from your sheet through working capital management

Abstract

This paper explores the concept of world class working capital (WC) management and recent industry trends and discusses a number of ways to realise the value that is unnecessarily tied up in corporate balance sheets. An increasing level of importance is being placed on managing WC by both leading corporates and PE houses, as the realisation of the accessible value becomes apparent. There are two key benefits of best practice management of Receivables, Payables and Inventory; the one-off release of cash into the business and the related ongoing cost savings. Reflecting on its advisory work and benchmarking, Ernst & Young believes that the largest 1,000 European companies by sales have in total up to €475bn of cash surplus to WC requirements (US$450bn for the top 1,000 US companies). Working capital management has therefore come to the forefront of the minds of leading company executives and, as such, has influenced the direction in which the business has been taken; but how are the top performing companies generating these savings? Working capital management has become a strategic objective for them, with commitment to integrated programmes with both suppliers and customers, achieving sustainable improvements through rigorous process review and implementing best practice solutions. This paper shows that a key instrument in this process is the buy-in of management and the changing behaviours of the employees from the top down.