CTcon: Working capital management

Wor­king ca­pi­tal ma­na­ge­ment


In the aftermath of the global financial and economic crisis, company leaders are reorienting themselves, shifting their focus from liquidity to growth and profitability. As a result, capital commitment is attracting renewed attention. Reducing it helps achieve the following goals: the company increases its financial scope for action, its value-based performance indicators improve, and the company value is positively impacted. The keyword in all of this is working capital management, an approach to optimising the relevant levers.

Current developments in the business environment are driving the need to reap the benefits offered by working capital management. Examples include more stringent lending rules (Basel III), increasing pressure on margins and unsatisfactory changes in liquidity.

In practice, companies use tools such as improved debtor management, reduced stockholding, faster stock turnover and better payment terms to work towards such improvements. They are anchored in management processes such as order-to-cash, forecast-to-fulfilment and procure-to-pay, each of which cuts across functions. The challenge in reducing capital commitment therefore lies in the need to strive for cross-process and cross-functional optimisation while harmonising procurement, distribution, accounting, planning, production and supply chain processes.

Key questions

For working capital optimisation, key questions include:

  • Working capital drivers: which operational areas of the business offer opportunities, which levers are available and how can they be used to boost the efficiency of capital? One of the tools used for working capital analyses is the cash-to-cash cycle. The working capital commitment can be established and optimised using the cash-to-cash cycle time metric and its components, days sales outstanding (DSO), days inventory valued (DIV) and days payables outstanding (DPO).
  • Departments: which departments have to be involved to ensure that the measures are properly anchored and managed?
  • Time horizon: how should the optimisation programme be structured for short and long-term impact?
  • Metrics: which financial KPIs can be managed through a more efficient use of working capital, and in which dimensions? External industry benchmarks and best practices provide additional valuable guidance on defining the optimum capital amount.

Our offering

Can net working capital be reduced by up to 20 percent in the short term? Yes! Using proven analysis methods and sound benchmarks, we assist our clients in quickly identifying the most important levers and areas of activity.

Your contact person

Patrick Bach
Partner | Bonn| Germany
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