MIAMI & LONDON–(BUSINESS WIRE)–For the first time in a decade, the 1,000 largest U.S. public companies improved performance in the three main components of working capital last year: they managed inventory more efficiently, collected customers faster, and took longer to pay suppliers, according to the Hackett Group’s 2022 working capital survey, Inc. (NASDAQ: HCKT). But despite this triple improvement, the overall opportunity for working capital improvement has increased significantly.
The Hacket Group®The 2022 Working Capital Survey is currently featured on CFO.com. A summary of the research findings, including a detailed industry analysis and working capital improvement recommendations, is available free of charge, with registration, at this link: http://go.poweredbyhackett.com/wcs22sm .
After a tumultuous year in 2020, which saw major operational and financial disruptions across most industries, performance and liquidity have more than returned to pre-pandemic levels in 2021. The three key measures of working capital – days of outstanding debt (DPO), days of outstanding sales (DSO) and days of outstanding inventory (DIO) – all had a positive trend for the year. DPO improved by 0.5% from 61.9 days to 62.2 days. The DSO improved by 2%, from 41.7 days to 40.6 days. Finally, DIO improved by 2%, from 56.7 days to 55.7 days.
Boosted by a 22% increase in revenue as companies rebounded from the early stages of the pandemic, companies also saw a 12% improvement in EBITDA margins, a dramatic increase after a 4% decline in 2020. the pressure of materials and labor, accelerating their digital transformation to improve productivity and reconfiguring their offerings to maintain profitability,” said István Bodó, director of Hackett Group.
Excess working capital increased significantly in 2021, far outpacing the increase in revenue. According to Hackett Group analysis, the top 1,000 companies have nearly $1.7 trillion tied up in excess working capital. That’s a 28% increase from $1.29 trillion in 2020. The opportunity includes $627 billion in inventory, $533 billion in receivables, and $498 billion in debt.
Top performers by industry now convert cash more than 3x faster than mainstream companies (15.8 days vs. 46.2 days). They collect customers 43% faster (in 27.8 days vs. 48.7 days), hold 58% less inventory (28.1 days vs. 67.7 days), and take 50% longer to pay for suppliers (76.6 days versus 51.2 days)
Free cash as a percentage of revenue fell 23% last year, after a sharp increase to 13% in 2020, now bringing it back close to pre-pandemic levels. Companies also saw a 17% decrease in their debt as a percentage of revenue, indicating that companies have used the cash they have amassed during the pandemic to improve operational and financial performance.
“The improved 2021 metrics are encouraging, but they are contrasted by a significant increase in total excess working capital,” said Shawn Townsend, Principal of The Hackett Group. “This opportunity – combined with ongoing uncertainties and disruptions ranging from high inflation, rising interest rates, geopolitical issues and the ongoing pandemic – means businesses cannot ease off on concerns working capital management. Prudent businesses will not only refine their inventory, receivables and payables strategies, they will also double down on their working capital health management capabilities – increasing their visibility into key indicators, better sharing information between functions and automating processes – to enable agility in a context of continuous change.
About Hackett Group
The Hackett Group, Inc. (NASDAQ:HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking firm for global enterprises, delivering digital transformation, including leading enterprise cloud applications, workflow automation and analytics that enable Digital World Class™ performance.
Leveraging our unrivaled IP from nearly 20,000 benchmark studies of the world’s largest companies – including 97% of the Dow Jones Industrials, 94% of the Fortune 100, 70% of the DAX 30 and 51% of the FTSE 100 – captured thanks to our leading benchmarking platform, Quantum Leap® and our Digital Transformation Platform (DTP), we are accelerating the implementation of best practices.
More information about The Hackett Group is available at: www.thehackettgroup.com, [email protected], or by calling (770) 225-3600.
The Hackett Group, the quadrant logo, World Class Defined and Enabled and Quantum Leap are registered trademarks of The Hackett Group.
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