For the first time in a decade, the 1,000 largest public companies in the United States improved their performance in managing inventory more efficiently, collecting more quickly from customers and taking longer to pay suppliers, according to the Hackett Group Working Capital Survey 2022Inc. But despite this triple improvement, the overall opportunity for working capital improvement has increased significantly.
“The improved 2021 metrics are encouraging, but they are contrasted by a significant increase in total excess working capital,” says Shawn Townsend, Principal of The Hackett Group. “This opportunity – combined with ongoing uncertainties and disruptions ranging from high inflation, rising interest rates, geopolitical issues and the ongoing pandemic – means businesses cannot ease off on concerns working capital management. Prudent businesses will not only refine their inventory, receivables and payables strategies, they will also double down on their working capital health management capabilities – increasing their visibility into key indicators, better sharing information between functions and automating processes – to enable agility in a context of continuous change.
- After a tumultuous year in 2020, which saw major operational and financial disruptions across most industries, performance and liquidity have more than returned to pre-pandemic levels in 2021. The three key measures of working capital – Days of Outstanding Payable (DPO), Days in Outstanding Sales (DSO) and Days in Progress Inventory (DIO) – all had a positive trend for the year. DPO improved by 0.5% from 61.9 days to 62.2 days. The DSO improved by 2%, from 41.7 days to 40.6 days. Finally, DIO improved by 2%, from 56.7 days to 55.7 days.
- Boosted by a 22% increase in revenue as companies rebounded from the early stages of the pandemic, companies also saw a 12% improvement in EBITDA margins, a dramatic increase after a 4% decline in 2020.
- Excess working capital increased significantly in 2021, far outpacing the increase in revenue. According to Hackett Group analysis, the top 1,000 companies have nearly $1.7 trillion tied up in excess working capital.
- Top performers by industry now convert cash more than three times faster than mainstream companies (15.8 days vs. 46.2 days). They collect from customers 43% faster (27.8 days vs. 48.7 days), hold 58% less inventory (28.1 days vs. 67.7 days), and take 50% longer to pay suppliers (76.6 days versus 51.2 days).