Calls to be more efficient with capital from the CEO and the board of directors are not uncommon. But improving working capital — the funds tied up financial operations — while growing a business requires a balancing act.
For example, do you keep finished goods inventory well-stocked to maximize sales opportunities and shorten delivery times to customers, or do you operate with a lower margin for safety and keep inventory lean to maximize liquidity, even if it might mean missing a couple of potential sales?
The annual Working Capital Scorecard from CFO and The Hackett Group benchmarks the working capital performance of a population of the 1,000 largest U.S. companies, tracking their cash conversion cycle (CCC), days sales outstanding (DSO), days payable outstanding (DPO), and days inventory outstanding (DIO).
Our Scorecard coverage looks at the reasons behind the results and what issues organizations face in collecting receivables on time, keeping inventory levels optimal, and stretching payables to a reasonable period to keep liquidity high. To provide a full picture of working capital trends, the stories below reveal how U.S. companies performed in 2022 and the years leading up to it.
Working Capital Scorecard by Year
This year’s Scorecard showed the 1,000 largest U.S. companies increased net working capital by 11% in 2022, to $1.54 billion.
Inflation and higher interest rates make striving for working capital efficiency critical. But they also make it tougher.
- CFOs Hunt for More Cash
- The Industries That Got Paid Faster
- Supply Chain Pressures Keep Inventories High in Q2
Many companies improved their working capital performance and stayed plenty liquid. Still, for others, a pandemic-disrupted economy meant too much capital tied up in day-to-day trading operations.
A disrupted economy will make it harder to manage receivables, payables, and inventory with efficiency.
With payables stretched to the limit, wringing more cash out of working capital will be a challenge.
The cash conversion cycle improved once again in 2017, largely because many companies took as long as possible to pay suppliers.
The CCC for the 1,000 largest nonfinancial U.S. companies fell by 1.4 days in 2016. Excluding the still-ailing oil and gas sector, the improvement was even better—a decline of 2.7 days.