Search
 

Switch to “True” Working Capital Metrics

Technology today enables companies to get a more realistic understanding of their performance in working capital management.

By Bob Leonard | Updated on June 30, 2016
Many companies that have made significant investments in working capital are still using the same metrics and analysis methods they were using 20 years ago. This is unacceptable for most organizations.

For a company with $1 billion in sales, total working capital can easily fall in the range of $400 million to $500 million. Ratchet this up to $5 billion in sales, and the total working capital may be well over $2 billion. A 10 percent improvement in working capital could yield a $200 million improvement in cash flow and liquidity.

The potential benefits of improving working capital management should come as no surprise to a modern finance executive. Still, most companies have soft measures for working capital, or they measure their working capital performance using simple financial ratios. These basic financial ratios are often so inaccurate or misleading that they make it impossible to really understand performance. Thus, they inhibit the company’s ability to accurately measure change, forecast results, or track working capital improvements.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Recommended Stories

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2024 ALM Global, LLC. All Rights Reserved.