The leading six North American operators have between US$3 billion and US$7 billion of cash unnecessarily tied up in WC processes.
For North American operators, there was a further improvement in WC performance in 2010 relative to 2009. The net trade WC to sales ratio fell from 1.1% to 0.3%, with C2C dropping by 14% over that period.
WC progress in 2010 was due to lower levels of receivables and, to a lesser extent, higher levels of payables. Levels of deferred income increased from 3.8% to 3.9% of sales, while inventory performance deteriorated.
Overall, five companies out of six reported a year-on-year improvement in WC performance.
Telecom trend watch
North American operators are seeing the following trends.
- Revenues shift toward data
- Prepaid cellphone plans increasing in popularity, boosted by the rise of smartphones
- Ongoing consolidation among operators
Change in WC metrics, 2009–10
|Days ||2010 ||Change 10/09 |
|DSO ||40.0 ||-6% |
|DIO ||4.7 ||5% |
|DPO ||29.6 ||1% |
|C2C ||15.1 ||-14% |
| || || |
|%sales ||2010 ||2009 |
|Net trade WC ||0.3% ||1.1% |
Number of companies showing improved WC performance, 2010 vs. 2009
| ||Change 10/09 |
|DSO reduction ||2 |
|DIO reduction ||2 |
|DPO enhancement ||5 |
|C2C reduction ||5 out of 6 |
| || |
|Net trade WC reduction ||4 out of 6 |
Note: DSO (days sales outstanding), DIO (days inventory outstanding), DPO (days payable outstanding) and C2C (cash-to-cash), with metrics calculated on a sales-weighted basis
Source: Ernst & Young analysis, based on publicity available annual financial statements.
Opportunity for improvement
Variations in WC performance between operators in North America point to significant potential for improvement.
A high-level analysis suggests that the leading six North American operators have between US$3 billion and US$7 billion of cash unnecessarily tied up in WC processes, equivalent to between 0.8% and 2.2% of sales.
Analysis shows that the cash opportunity comes primarily from payables (three-quarters of total), with the rest evenly split between receivables and inventories.
WC cash opportunity, 2010
| ||Cash opportunity |
| ||Value (US$b) ||% WC scope* ||% sales |
| ||Average ||Upper quartile ||Average ||Upper quartile ||Average ||Upper quartile |
|Receivables ||0.4 ||0.9 ||1% ||3% ||0.1% ||0.3% |
|Inventories ||0.3 ||0.7 ||7% ||17% ||0.1% ||0.2% |
|Payables ||1.8 ||5.1 ||7% ||31% ||0.6% ||1.7% |
|Total ||2.5 ||6.7 ||4% ||11% ||0.8% ||2.2% |
*WC scope = sum of trade receivables, inventories and accounts payable
Source: Ernst & Young analysis, based on 2010 publicly available annual financial statements.
For a detailed regional analysis, please see tables 5 – 8 (noted in the pdf).
DPO per operator, 2010
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