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Final Bell


Working Capital: Never Been Better By: Chris Brown E


ver since the 2008 global recession, and the ensuing weak economic cli- mate, any tip on how to increase your competitiveness and prof-


itability should be acknowledged and well re- ceived. Welcome Working Capital: Never Been Better, the new report from PwC, the bearer of good news for all European companies, espe- cially those based in the UK. This study offers an analysis of European working capital per- formance, and the research was formulated by studying 2,307 of the largest companies in Europe. Management of working capital is better than


ever for large EU companies, with UK compa- nies being classified as the most competent of all. This is great news as managing your capital and quickly converting your working capital into revenue has a direct impact on the prof- itability of your business. The report highlights a marked improvement in companies based in the UK’s cash to cash conversion. The UK con- version rate has decreased from 60 days in 2010 to 55 days in 2011. This conversion rate, 15 days less than the average 70 days for European countries, places UK companies in good stead. If UK companies can improve on this even fur- ther then all the better, as a reduction in working capital levels can significantly impact a company’s profitability.


While the levels of working capital are de- creasing amongst European companies in gen- eral, there are still significant disparities between those that are performing well and those that are not. An understanding of how to release this cap- ital is invaluable – in 2011 UK companies had


over £49bn (€59bn) tied up, which could have been released if they had better managed their working capital. Better management and releas- ing trapped money that is resting on the balance sheet will enable your company access to cash more easily and deter any unnecessary borrow- ing. This all spells good news for profitability. Does it make a difference depending on what sector your business is in? While the findings showed an improvement in working capital throughout every economic sector to varying extents, the retail sector was the most efficient sector in the UK in 2011, with an average 19 days cash-to-cash conversion cycle. Compare this to an inefficient manufacturing sector that landed a 104 day turnover and you can see there is definitely room for improvement and better understanding in certain sectors. This 85 day difference between the best and worst cash-to- cash conversion rates is a talking point, and the reasons behind such a wide disparity need to be addressed to promote a more competitive over- all economy.


The findings in the study were generally pos- itive; highlighting all sectors in the UK indicated


an improvement in working capital between 2010 and 2011. The telecommunications sector in the UK improved by 40.8% between 2010 and 2011. What caused this positive result and what can other sectors learn from this? More emphasis on money and enhanced working capital controls is said to enable companies to increase their per- formance and improve their working capital fig- ures, thus improving profitability. One the other end of the scale, the sector that showed the least improvement was utilities, which displayed a mere 1.34% improvement. The fact that this is still a positive percentage, no matter how small, is good news. Certain sec- tors will have to look at how they can improve their percentages and keep up with the more progressive sectors. What are the best perform- ing companies doing differently, and how can your company join them? The study highlights that the thriving businesses are continuously re- vising themselves to new environments, and are using and familiarising themselves with tech- nology to realise substantial reductions in work- ing capital. Follow this lead and you are on the right track.


companies, with UK companies being classified as the most competent of all.


Management of working capital is better than ever for large EU


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