Management Accounting

Room for Improvement (But Not Much)

A new study from CFO Research finds that companies continue to refine working-capital performance.
CFO StaffNovember 1, 2010

As the economy continues to struggle, U.S. companies are still looking for ways to improve their working-capital performance. But a new report from CFO Research Services (in conjunction with The Royal Bank of Scotland) suggests that further gains will, for the most part, be modest, if only because companies have achieved so much already.

The area most likely to receive additional attention from U.S. firms is days inventory outstanding, with 25% of the 186 respondents to a recent survey indicating they plan substantial improvements and another 38% planning moderate improvements (see the chart below). Days sales outstanding was the second most commonly cited area, with more than half of respondents anticipating substantial or moderate improvements. But half of all respondents say they plan to make only incremental improvements in days payable outstanding, suggesting that the long recession has already motivated companies to tighten this process about as much as they can.

Asked what motivates them to continue to improve their working-capital performance, companies cite “reduce financing costs” and “manage risk better” as the top two drivers, but a third also say they hope better working-capital management will “improve market confidence in [our] company.”

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As for how they plan to improve, a majority (59%) say they will refine existing processes via standardization, reengineering, automation, and similar enhancements. Just over half plan to negotiate better terms with buyers and suppliers, while 39% say they will improve internal IT systems.

Degree to which U.S. companies plan to improve various working-capital metrics in the next 12 months