Companies lose £248m due to poor working capital
Poor practices lose companies £125bn over the past five years
Poor working capital practices lost companies as much as £125 billion in cash over the past five years, with each large company losing on average £248 million, according to a new study released on Friday.
Across Europe, the most inefficient companies could have generated £615 million in cash per company on average, or £400 billion in total, the study by PwC revealed on Friday.
With weak or no growth in many companies’ traditional markets of Europe and the US boards are focusing on tighten working capital practices to squeeze more from receivables, payables and inventories.
“Working capital presents a huge opportunity for companies to release cash from their balance sheets and operate more effectively. Managed well, it enables growth without additional funding requirements,” Robert Smid, PwC working capital partner, said.
“Good performers are able to fund their own growth and release cash, while the bad performers have to find additional capital to fund their growth,” Smid added.
Typically, companies grow their working capital in line with sales. In the UK, the best companies reduced their working capital by £140 million on average, the study found. But the bad performers increased working capital, on average by £55 million per company.
The study – Cash for Growth - analysed the largest 4,000 European companies (with a turnover of over £150m), looking at their working capital performance between 2007 and 2011.
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