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Cash on the chip: working capital in technology - Working capital opportunities going forward - EY - Global

Cash on the chip: working capital in technology

Working capital opportunities
going forward

  • Share

WC cash opportunity, 2010

  Cash opportunity
Region Value % WC scope* % Sales
  Average Upper quartile Average Upper quartile Average Upper quartile
Communication equipment 3.4 5.0 28% 41% 5.8% 8.6%
Computer equipment 4.0 9.8 7% 16% 2.1% 5.1%
Distribution 3.0 7.0 6% 15% 2.5% 5.9%
Diversified IT 7.2 13.6 9% 18% 3.2% 6.0%
EMS 0.4 3.6 2% 15% 0.8% 6.7%
Semiconductor components 2.2 6.8 7% 21% 2.0% 6.0%
Software 1.5 4.2 5% 15% 1.2% 3.2%
Top 70 US 21.7 50.0 8% 18% 2.4% 5.6%

Source: EY analysis, based on publicly available financial statements



The size of the disparities in performance between companies within each segment also points to fundamental differences in management focus on cash and process efficiency.

Variations in working capital performance between US technology companies and within each segment point to significant potential for improvement. The reality is that only half of the companies analyzed showed an improvement in C2C since 2002.

This suggests large variations in the direction and degree of focus and improvement company by company. Leading performers reported a drop of 42% in C2C, while laggards saw an increase of 43%. Several large companies reported well-above average working capital progress, significantly influencing overall changes.

A high-level analysis suggests that the leading 70 US technology companies have between US$22 billion and US$50 billion of cash still unnecessarily tied up in working capital processes, equivalent to between 2.4% and 5.6% of sales.

This is calculated by comparing the performance of the working capital components of each company with that of the average (low estimate) and the upper quartile (high estimate) of its segment peer group. Even at the top end of each range, our experience across many projects, industries and geographies shows that a dedicated focus on working capital management can frequently release results at or above this level.

WC cash opportunity, 2010

For the industry as a whole, the range of cash opportunity is slightly lower than a year before (when it was between 2.6% and 5.9% of sales). The spread of performance for the industry has tightened slightly since 2002, when it was between 2.8% and 6.0% of sales.

For the industry as a whole, the range of cash opportunity is slightly lower than a year before (when it was between 2.6% and 5.9% of sales). The spread of performance for the industry has tightened slightly since 2002, when it was between 2.8% and 6.0% of sales.



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