After hitting 10-year highs in 2020, working capital for S&P 1500 companies in 2021 returned to pre-COVID-19 levels as a recovery in the global economy led to an increase in 20% of sales across all businesses, resulting in a reduction in inventory. This was one of the main findings of the 2022 edition of JP Morgan’s Working Capital Index report, released recently.
The annual report, which analyzes working capital metrics for companies listed on the S&P Composite 1500 Index, also found that corporate cash levels declined in 2021 compared to 2020 as companies began to deploy cash. strategically after a period of cash preservation. Companies generally conserve cash in times of crisis or uncertainty to ensure sufficient liquidity.
Meanwhile, the report estimates that $523 billion in cash remained trapped in the supply chains of S&P 1500 companies at the end of last year, compared to $507 billion in 2020.
“After the shocks to the macro environment as a result of COVID-19, 2021 marked the transition from survival to recovery of the global economy, supported by government stimulus measures, accommodative monetary policy and the deployment effective vaccines worldwide. As a result, we see business working capital returning to pre-pandemic levels,” said Gourang Shah, Global Advisory Head for Payments at JP Morgan, who is one of the authors of the report.
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“However, 2022 has brought new challenges, including the Ukraine-Russia conflict and rising interest rates, which are further disrupting global supply chains and increasing financing costs. finance will improve their working capital management to ensure their businesses weather the short-term uncertainties,” Shah added.
The report found that nearly 70% of S&P 1500 companies saw improved working capital efficiency in 2021, with the pharmaceutical, apparel and accessories, and automotive sectors being among the sectors improving the most, while the aerospace and defense, technology software and media sectors were the least optimal.
The Working Capital Index was launched in 2019 to provide insight into the working capital performance of some of the world’s largest and most influential companies and to serve as an industry standard for companies to benchmark their working capital performance against. working capital to those of their peers.