Capital Report



McGrathNicol Advisory profiled the working capital performance of 126 ASX listed companies across seven working capital intensive sectors, with a combined market capitalisation of $900 billion.

The COVID-19 pandemic triggered the first Australian economic recession in nearly 30 years, making 2020 a unique year in the history of the Working Capital Report. The pandemic accelerated a change in operating models and caused a rethink of some of the “old rules” for working capital management, as global supply chains were disrupted and the adoption of technology and ecommerce was required to meet shifting demand patterns.

Activity levels were up, with 66% of companies reporting revenue growth in 2020. There was also a cash release from working capital as Days Working Capital (DWC) reduced by 2.4 days relative to 2019. The reduction in DWC is the most material since our first report in 2013. This was primarily driven by an improvement in cash collections from sales (a reduction in Days Sales Outstanding (DSO)). Interestingly, four of the five sectors that improved DSO shared some of the benefit with suppliers by also reducing Days Purchases Outstanding (DPO). Days Inventory Outstanding (DIO) was broadly flat for the full year.

Across most sectors covered, the gap between the “best” and ”worst” performers exceeded 100 days, highlighting the mix of results and the potential material competitive advantage for those businesses that get working capital management right.

COVID-19 appeared to impact revenue and DWC in H2. More than half of the companies sampled experienced a contraction in revenue and there was a 3.3 day lengthening of DWC, driven by businesses paying suppliers 11.8 days faster on average (relative to H1) as they worked hard to shore up supply and support counterparties further along the supply chain. The additional cash passed to suppliers was generated by nearly two thirds of the sample improving DSO and over half improving DIO in H2, as well as record levels of Government stimulus injected into the economy.

This year for the first time we have included an analysis of international businesses. We also provided key working capital considerations to help companies rebound from COVID-19. Results from our analysis can be found on the industry sector pages accessible below.

Industry Change

DSO 2.4 ⇓

DIO 0.1 ⇑

DPO 0.5 ⇓

DWC 2.4 ⇓