America's largest public companies managed inventory more effectively, collected from customers faster, and took longer to pay suppliers, according to the 2022 Working Capital Survey from The Hackett Group. Despite this improvement across all three components of working capital, the overall working capital improvement opportunity increased substantially, said the report.
The three key measures of working capital – days payables outstanding (DPO), days sales outstanding (DSO), and days inventory outstanding (DIO) – all trended positively for the year for the top 1000 US businesses. DPO improved by .5%, from 61.9 days to 62.2 days. DSO improved by 2%, from 41.7 days to 40.6 days. Finally, DIO improved by 2%, from 56.7 days to 55.7 days.
Excess working capital grew substantially in 2021. According to The Hackett Group’s analysis, the top 1,000 companies have nearly $1.7 trillion tied up in excess working capital, 28% up from $1.29 trillion in 2020. The opportunity includes $627 billion in inventory, $533 billion in receivables, and $498 billion in payables.
Top performers by industry now convert cash more than three times as fast as typical companies (15.8 days versus 46.2 days). They collect from customers 43% faster (in 27.8 days versus 48.7 days), hold 58% less inventory (28.1 days versus 67.7 days) and take 50% longer to pay suppliers (76.6 days versus 51.2 days).
Cash on hand as a percentage of revenue fell by 23% last year, after a sharp increase to 13% in 2020, putting it now back near pre-pandemic levels. Companies also saw a 17% decrease in debt as a percentage of revenue, indicating that companies have been using the cash they have hoarded during the pandemic to enhance their operational and financial performance.
'The improved metrics of 2021 are encouraging, but they are contrasted by a significant increase in total excess working capital,' said The Hackett Group Director Shawn Townsend. 'That opportunity -- combined with ongoing uncertainties and disruptions ranging from high inflation, growing interest rates, geopolitical issues and the ongoing pandemic -- means that companies cannot take their foot off the gas when it comes to working capital management.'
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