BUSINESSES are failing to make the most of cash tied up on their balance sheets and will need to raise billions of pounds each year if they are to continue to grow, accountants PwC have said.
According to PwC's latest working capital study, which tracks companies' success in optimising working capital, companies are consuming more cash as improvements in working capital achieved immediately following the financial crisis have tailed off over the last four years.
The study, which analysed the accounts of 7,368 companies across the world, found that as much as of €1.4trn (£1.1trn) in excess cash is tied up on companies' balance sheets, and that, as working capital performance has stagnated, companies need an extra €103bn of cash each year to sustain current working capital levels without impacting capital investment.
If companies continue to grow at a modest rate of 1% each year, PwC has calculated they would need to find more than €300bn in cash to finance working capital and incremental CAPEX over the next three years.
"Instead of investing in growth, companies have had to invest in working capital," said Daniel Windaus, working capital partner at PwC. "Worldwide, continuing problems with inventory indicate that achieving improvements in complex supply chains remains a challenge. Improving working capital requires complex structural alignments at the grass roots of business to be sustainable."
Across the globe, working capital has generally improved as companies have become more efficient with their inventory. However, only 9% of companies have sustained three years of consecutive working capital improvements.
"The five weakest performing sectors are the ones who are consuming the most cash: farming, healthcare, transport, aerospace and pharma. There are significant opportunities for these companies to improve their positions," Windaus said.
Sign up for Financial Director email alerts
Please enter your email below to receive your profile link
Search by job title, salary, or location - we only list senior financial roles
Our panel of experts explore the major pension pain points and discuss what actions finance professionals should be taking in order to alleviate them
The first CFO Agenda, hosted by Financial Director at the Royal Society of Arts, was a roaring success
Corporate failures can almost always be traced back to a failure of corporate culture. But how do you assess culture? asks Richard Crump
Send to a friend