This year’s PwC global working capital survey shows that, whilst working capital is a hot topic, performance has actually dropped to below pre-2008 financial crisis levels, with a total of €1.1 trillion trapped in inefficient processes. Short-term measures taken in the wake of the crisis to protect liquidity included cutting inventory and ensuring payments were made on time. However, as these measures didn’t look at processes and efficiencies overall, the benefits were reversed in the years that followed.

Revenues and working capital days trend

The figures for 2014 and 2015 show that companies made some progress, with annual improvements of 0.3% and 1.6% respectively in net working capital  (see chart, right), suggesting a reinvigorated focus from management. However,  this still falls short of pre-2008 levels.

The survey also reveals cash-on-hand (CoH) figures which are at an all time high. As a percentage of revenue, CoH has increased from 8.6% in 2006 to 11.6% in 2015. With working capital largely unchanged in this period, these cash reserves are attributed to cheap access to cash.

In Europe there was a marked improvement when compared to the rest of the world,  with the UK, and especially FTSE100 companies,  outpacing all others. With the uncertainty of Brexit looming large, these gains maybe short-lived.

“Companies are in a period of uncertainty following the UK vote to leave the EU,” said Daniel Windaus, working capital partner at PwC and lead author of the report. “Many lessons can be learned from the gains companies made in working capital management in the years following the 2008 financial crisis. Cash trapped in working capital has risen in the years since, indicating that companies should revisit the improvements they made then to release more of this cheap cash source.”

PwC’s annual survey is a performance health check of 13,000 of the largest companies in the world. The firm analysed ten year’s worth of financial statements data taken from S&P Global Market Intelligence.

Read the full report.