Working capital – the key to fuel growth and reducing financial risk
Working capital is a fundamental component of most companies' operations but the management thereof is often overlooked, resulting in early warning signs not being identified and/or missed opportunities. Efficient management of working capital within Australian and New Zealand (NZ) companies can enable them to better ride the natural movements in an economy currently underpinned by a volatile commodities market. Both countries face challenging and interesting times ahead as we pivot away from the mining boom towards agriculture and services whiles contending with potential instability from our Asian neighbours.
Our study of the 458 largest companies listed on the ASX thoroughly analyse the current availability and likely future requirements of working capital for Australian and NZ companies of 2015-16 and into the coming years.
In the last two years, we have seen an overall reduction in days of working capital, indicating managements' continued focus on tightening the control on working capital.
Despite this improvement, Australian and NZ companies still lag behind 2011 levels and have a $119 billion cash opportunity from improvements in working capital processes.
How can we trigger the $119 billion cash release? If underperforming companies simply achieve average performance and if the better performing achieved the upper quartile performance.