COMPANIES around the world are more awash with cash than at any point in the last five years following an improvement in global working capital performance, advisers PwC said.
The Big Four firm’s latest working capital study, which analysed the books of over 10,000 of the world’s largest listed companies, found that for the first time since 2010 working capital has significant decreased globally, with a 2.9% year-on-year improvement.
Cash-on-hand jumped 11.3%, but only seven out of 16 sectors actually managed to improve their working capital since 2010, however those improvements compensated for the performance gap of the other sectors.
According to PwC’s analysis, the revenue trend of the last five years suggests that €279bn (£194bn) of additional working capital is required to enable next year’s growth, but companies’ overall ability to generate new cash has stagnated. Cash conversion efficiency has improved by just 0.5% over the last five years, while debt burdens have risen to a five-year high. Globally, net debt relative to EBITDA has risen at a compound annual growth rate of 5.19%.
Companies which are under-performing in terms of working capital efficiency are able to release more than €950bn of cash from their balance sheets by bridging the performance gap, said Daniel Windaus, working capital partner at PwC and lead author of the report
“Relative changes in working capital performance aren’t driven by economic cycles or interest rates, but by a cash-focused mindset and a greater focus on smarter working capital management. Cash, after all, is the life blood of all companies,” he said.