U.S. And EU Companies Wasting $1.3 Trillion In WC?

Leading US and EU companies can achieve working capital benefits by properly addressing ‘root and branch’ aspects of working capital policies, processes and metrics, notes an EY survey.

EY’s seventh annual publication titled: “All tied up — Working capital management report 2014” offers insight into top 2,000 companies in the U.S. and Europe, besides focusing another 2,000 companies in seven other regions and countries.

U.S. flat to deteriorating C2C compared to EU companies

The EY survey highlights that compared with 2012, WC performance of leading U.S. companies further deteriorated while it was relatively stable in Europe. As can be deduced from the following table, Cash-to-cash for U.S. companies increased by 1% from its 2012 level, after a rise of 2% in the previous year. However, in Europe, this year’s stable performance contrasts with the progress made the year before when C2C fell by 4%:

Change in WC metrics EU companies

Digging deep for the reasons for deteriorating WC performance in 2013 in the U.S., the survey highlights that receivables and inventory clocked poor results with DSO and DIO each up 2%. However, this was partly offset by improved display in payables with DPO increasing by 2%.

On the other hand, Europe’s flat WC performance was aided by the net result of deterioration in inventory performance, offset by better results by payables and flat performance by receivables.

U.S. and European industry performance

Focusing on the industry performance, the EY survey highlights the wide variations witnessed in 2013 in the level and direction of changes in C2C between various industries across the US and Europe. The survey notes this could partly be attributable to differences in the degree of management focus on cash and WC, as well as the impact of changing commodity prices and exchange rates.

The following table sets forth the most significant WC changes among major industries between 2012 and 2013:

Most significant WC changes among industries EU companies

Taking a closer look into the seven main sub-regions and countries in Europe, the survey highlights that WC performance was better for three, worse for three and flat for the remaining one. The following table illustrates this trend:

EU companies WC changes by sub-region

U.S. and EU companies: $1.3 Trillion opportunity

Highlighting the immense potential for improvement in many areas of WC, the survey points out that a high-level comparative analysis shows that the leading 2,000 US and EU companies still have up to $1.3 trillion of cash unnecessarily tied up. As can be deduced from the following table, this amount is equivalent to nearly7% of their combined sales.

EU companies WC cash opportunity

As depicted in the following table, the survey highlights that companies based in the other seven regions and countries reported an improvement in WC performance in 2013, compared to 2012, with C2C dropping 2%:

C2C change-Other regions EU companies

The EY survey concludes that by initiating appropriate steps such as streamlining of manufacturing and supply chains, companies’ return on capital can be boosted as well as achieving top-tier WC performance.