EY - Cash in the cloud: working capital management 2014

Cash in the cloud: working capital management 2014

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The technology industry’s working capital (WC) performance — excluding Apple — has remained unchanged since 2007, in sharp contrast with the progress made in the previous five years (2002-07), during which C2C dropped by a total of 15%.

The results from our analysis of the 70 largest (by sales) US technology companies in 2013 show a deterioration in WC performance from the previous year, with cash-to-cash (C2C) increasing by 2%. Had Apple been excluded, C2C would have also risen by 2%. However, a degree of caution should be exercised when interpreting these findings. Results were far from uniform across and within the technology segments. In addition, had current deferred revenues been included in the calculations, the industry’s WC performance would actually have shown an improvement between 2007 and 2013.

Change in WC metrics across the technology industry, 2007–13

 
C2C
Top 70 US
2013
Change 13/12
DSO
56
-4%
DIO
19
-20%
DPO
37
7%
C2C
38
-20%
C2C (excluding Apple)
2013
Change 13/12
62
3%
22
-10%
33
-3%
51
0%
Segment
2013
Change 13/07
Computer equipment
-8
down 22 days
Software
50
–6%
Distribution
43
–1%
Diversified IT
60
0%
Semiconductors
54
5%
Internet
34
19%
EMS
45
19%
Communications equipment
64
30%
Top 70 US
38
-20%

Source: EY analysis, based on publicly available annual financial statements.

Taken together, these findings suggest that many of the most readily available opportunities for improvements in WC have already been exploited.

Also, some technology companies may have consciously chosen to expand their WC by using their balance sheets to grow sales, expand margins or provide financing solutions to their supply chain and distribution channel partners.

However, the continuing wide variations in WC performance between different companies in each segment of the technology industry suggest that the potential for improving WC remains significant.

Our research indicates that the leading US technology companies have up to US$58b of cash unnecessarily tied up in WC. This figure is equivalent to over 5% of their combined sales.

Leading technology companies will be those that foster continuous operational and structural improvements in this vital area, addressing the “root and branch” aspects of WC policies, processes and metrics.

How EY can help

EY’s global network of professionals helps clients to identify, evaluate and prioritize realizable improvements to drive greater control over cash flows, as well as address working capital opportunities and challenges.

Whether through process improvements, elevated execution of policies or changes to commercial terms, our professionals can help companies pinpoint and capitalize on improvement opportunities and realize the resulting benefits.

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