Working Capital
Report
2019

ADDITIONAL C.$1.3 BILLION CASH RELEASED

McGrathNicol Advisory profiled the working capital performance of a sample of 140 ASX listed companies across nine sectors, with a combined market capitalisation of $726 billion. The average working capital cycle shortened by 0.9 days in 2019, releasing c.$1.3 billion in additional cash from working capital.

An increase in activity levels was reported across the sectors covered, with 89% of sampled companies growing revenues during the year. At the same time our sampled businesses were able to reduce the average time it took to collect their debtors and reduce inventory holdings. Growing revenue and reducing Days Sales Outstanding (DSO) and Days Inventory Outstanding (DIO) is a major ”win” in terms of cash flow.

Not all businesses that achieved revenue growth were able to achieve EBITDA growth, with increasing competition and higher input costs impacting margins. From a working capital perspective, there was a shortening of the average supplier payment cycle in 2019. Decreasing Days Purchases Outstanding (DPO) is not surprising in the context of higher activity levels as participants compete to secure materials, labour and equipment to meet customer demand and are willing to accept shorter terms from suppliers.

The average Days Working Capital (DWC) decreased in five of the nine sectors and 50% of all sampled companies reported lower net working capital. In four of the sectors with lower average DWC, there was an improvement in both collections and inventory management. In all sectors with higher average DWC, inventory holdings increased.

Overall, there was a release in cash from working capital in 2019 but 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. Across the majority of sectors covered, the gap between the “best” and ”worst” performers was in excess of 100 days.