Working Capital


Prepared by

Additional c.$691 million tied up

McGrathNicol Advisory profiled the working capital performance of a sample of 146 ASX listed companies across nine sectors, with a combined market capitalisation of $878 billion.

The average working capital cycle lengthened by 0.5 days in FY18, translating to the equivalent of c.$691 million in additional cash being held in working capital balances. This is cash Australian businesses could be using to fund their growth and deliver more value to customers and shareholders and is the second consecutive year we have seen a net increase in overall metrics.

Inventory was the key driver of longer working capital cycles, with average Days Inventory Outstanding (DIO) increasing by 1.3 days to 64.1 days. DIO increased in six of the nine sectors and the Food & Beverage sector experienced the highest DIO increase of all sectors covered.

A number of sectors also experienced stronger market conditions in 2018, notably Construction & Engineering, Building Products, and Mining & Resources. These sectors benefited from a mix of increased investment in residential and infrastructure projects and higher commodity prices. As a result, 84% of all sampled companies grew revenue during the year, although only 64% were able to translate this into EBITDA growth as increasing competition, higher energy and other input costs put pressure on margins.

Overall, Construction & Engineering showed the most significant improvement in average DWC in 2018 achieving a 4.6 day reduction, driven by faster customer collections and lower inventory, partially offset by shorter supplier payment cycles.

Interestingly, three of the nine sectors (Construction & Engineering, Media and Transport & Distribution) experienced a structural “funding gap” where companies pay their suppliers more quickly than they receive payment from their customers. This gap nearly doubled for the Transport & Distribution sector due to the compounding impact of longer customer collection cycles and shorter supplier payment cycles in 2018.

As you will observe, results were mixed across all sectors and within sectors, highlighting that achieving an improvement in working capital is not only desirable to “keep up” with competitors, it also presents an opportunity for material competitive advantage over much of the market.

Results from our analysis can be found on the industry sector pages accessible below.


DSO 1.1 ⇓

DIO 1.3 ⇑

DPO 0.3 ⇑

DWC 0.5 ⇑



DWC at 30 June (or latest available)