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Company working capital observations

Companies and analysts measure working capital by comparing the net value of Inventories + Debtors – Payables as a percentage of sales.

This is both dangerous and misleading.

It is dangerous as it can hide poor performance in one or more areas and misleading as it can give the impression of little change, when in fact there has been significant change. To illustrate, a Company has sales of €1,500m

But the Illustration demonstrates how a serious deterioration in stocks and debtors can be hidden by leveraging suppliers. But the working capital to sales is still 20%.

Many of our clients have this method of measuring net working capital (NWC) to sales or Trade working capital (TWC) to sales.

Working capital consulting understands this and knows how to find the hidden opportunities across large, multi-sector, multi country businesses.

We use clients’ own data to find hidden cashflow opportunities and identify what to do in order to deliver it.