Working Capital: Cash on the road of recovery

2009

Given the current credit squeeze, liquidity constraints and the risk of insolvency have increased – Idle cash potential of EUR 353 bn in working capital for top European companies offers opportunities

In the current overall economic situation increased cash requirements meet reduced cash supply and high financing costs. Companies face severe liquidity constraints and an increased risk of insolvency. Out of the possible financing sources, only a few are suitable. One of the main levers is to free up liquidity in working capital.

The new working capital study "cash for recovery" conducted by Roland Schwientek and Florian Kaiser covers 216 European top companies from all relevant industries representing EUR 3,700 bn in sales, EUR 422 bn in EBIT or 30% of the GDP of the EU 25 in 2008.
The working capital cash potential of the 216 companies totals EUR 353 bn in Q1 2009. From 2004 to 2008 the cash potential has increased by 38%, since 2008 another enormous increase of 32%. Supplier payables offer the highest cash potentials, followed by customer receivables and inventories.

Relative to tied-up working capital, energy utilities and engineered products show the greatest scope for releasing cash potential, followed by construction, aerospace, IT hardware, pharmaceuticals, paper, automotive OEMs and oil & gas – all showing a cash potential of more than 20% of total working capital.

We have developed a comprehensive toolkit for working capital management that is ready to use. Quick check approach and Cash Navigator help to identify the cash potential at company level within a 1 week quick assessment. To ensure the sustainability of the working capital project, a range of success factors that should be taken into account have been identified.

Good trip on the road of recovery!