///////////////////////////////////////////////////////////////////////////// sis to work on a
With cash generation and working capital now among the top strategic aims for business, sustain- able measures are crucial to long-term growth.
David Taylor (OnGuard), Sara Binns (PwC), and Philip King (ICM) explain why a new approach to optimizing working capital performance positions businesses for growth.
T
he health of a firm’s balance sheet and its
forecast cash flow accurately have come under increasing scrutiny as the global economy emerges slowly from recession. Banks are reticent to lend to
ability to
negotiations with incumbent lenders.
businesses that do not have clear strategies in place to control and optimize these and a further shortfall
in funding looms with a wave of loan maturities approaching. Lower borrowing limits bring additional pressure, squeezing the headroom
a firm has between its operational expenditure and available cash to fund growth and meet other strategic aims.
The leveraged loan wall
The looming wall of leveraged debt due to mature between 2013 and 2015 means there is likely to be a rush within the next 12 months as borrowers look to secure funding early and avoid complex
At the same time, lenders will be basing the cost of borrowing on reduced valuation (EBITDA) multiples and much more stringent criteria than in recent years. Management of
the loan will
also be watched more closely. Any business that breaches its covenant more than once will set alarm bells ringing at the bank and on top of that, firms will need to demonstrate that they have the right processes in place to manage their working capital as effectively as possible to prove and maintain a healthy balance sheet.
In addition, counter intuitive though it may seem, an increase in trade actually puts more pressure on working capital. If inventory has been reduced, companies will have to react to increased demand with less resource, and absorb any expenditure on raw materials until payment is received from customers.
In this context, companies must look to other sources of funding. Optimized working capital is the
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60