Deloitte: Consumer, Industrial Sectors Suffer Unproductive Working Capital

Lucas Gilmore, “Big 4″ observer
January 10, 2011 /

Deloitte’s global review of working capital highlighted findings that UK’s consumer sector continues to sit on excess working capital of about £13 billion while its industrial sector’s working capital of about £8 billion continues to tie up.

The working capital review generally showed “a myriad of simple transactions” where UK public limited companies’ significant working capital, estimated at £60 billion, unnecessarily suffers from a tie-up.

Andrew Harris, associate partner in Deloitte’s Corporate Advisory team, said shifting the focus to revenue and margin could possibly lead to the productivity of this working capital amid popular belief that structural reasons primarily drive working capital in the consumer and industrial sectors.

“It is our experience that a significant amount of working capital can be released without adversely impacting the underlying business,” Harris added.

The global review of working capital tapped more than 20,000 companies worldwide for the analysis covering a five-year period. The analysis showed that tie up in working capital could be attributed to basic accounting cycles, Deloitte said. One instance cited was the way of handling the processes in accounts receivable and payable. Unproductive working capital could also be linked to the management of inventory and supply chain, Deloitte added.

Harris said that several UK firms would need additional cash to supplement their growth and pay debts while some other firms have already cash reserves in place.

“By reassessing how working capital is put to use and releasing the excess element as cash, many businesses will find themselves in a much stronger position to fund the future of the business,” he added.

Harris showed surprise that even though working capital is the “cheapest, and most accessible, form of funding available to a business” most UK public limited companies “are sitting on top of such a phenomenal amount of money” and seemingly unmindful of how to bring it into action.

 

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