The company invoked a tough triage process in which it helped only those businesses it thought would survive. "It created a bond of trust and loyalty with those companies that will pay big dividends in the future," Smith predicts.

David M. Katz is New York bureau chief of CFO.

How Working Capital Works

Days Sales Outstanding: AR/(total revenue/365)
Year-end trade receivables net of allowance for doubtful accounts, plus financial receivables, divided by one day of average revenue.
A decrease in DSO represents an improvement, an increase a deterioration. In the accompanying charts, companies marked with an asterisk have securitized receivables, which improve DSO through financing alternatives without improving the underlying customer-to-cash processes such as credit-risk assessment, billing, collections, and dispute management. The scorecard eliminates this distortion by adding securitized receivables back on the balance sheet before calculating DSO.

Days Inventory Outstanding: Inventory/(total revenue/365)
Year-end inventory divided by one day of average revenue.
A decrease is an improvement, an increase a deterioration.

Days Payables Outstanding: AP/(total revenue/365)
Year-end trade payables divided by one day of average revenue.
An increase in DPO is an improvement, a decrease a deterioration. For purposes of the survey, payables exclude accrued expenses.

Days Working Capital: (AR + inventory - AP)/(total revenue/365)
Year-end net working capital (trade receivables plus inventory, minus AP) divided by one day of average revenue.
The lower the number of days, the better. The percentage change is marked N/M (not meaningful) if DWC moved from a positive to a negative number or vice versa.

Weighted Working Capital
Current year net working capital - previous year net working capital multiplied by the year-to-year revenue change.
A decrease is an improvement, an increase a deterioration.

Working Capital Opportunity
Upper-quartile trade receivables, inventory, or accounts payable performance of sample - comparable performance of a company or industry.

Note: Many companies use cost of goods sold instead of net sales when calculating DPO and DIO. Our methodology, however, uses net sales across the four working capital categories to allow a balanced comparison.

This year's survey uses the Global Industry Classification Standard to categorize companies.

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