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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