We Can Work It Out: The 2002 Working Capital Survey

Some companies have learned how to reduce working capital without punishing customers or suppliers. But the alternatives aren't totally pain-free.

The Securities and Exchange Commission has said it would like to see the Financial Accounting Standards Board develop stricter rules for use of the cash-flow statement, a request that will no doubt receive added attention in light of WorldCom’s restatement. —T.R.

How They Measure Up

The management of working capital combines two measures, weighted equally:
1. Days of Working Capital (DWC) = (Receivables + Inventory – Payables) ÷
(Sales ÷ 365 Days). If payables exceed the sum of receivables and inventory, DWC is negative.
2. Cash Conversion Efficiency (CCE) = Cash Flow from Operations ÷ Sales.

These two measures are used to calculate an overall ranking for the entire survey group, which allows the companies to be ordered in their respective industry sector. The overall ranking: (Highest Overall CCE – Company CCE) ÷ (Highest Overall CCE – Lowest Overall CCE) + (Lowest Overall DWC – Company DWC) ÷ (Lowest Overall DWC – Highest Overall DWC). Days sales outstanding (DSO), inventory turns, and days payable outstanding (DPO) are not part of the overall ranking criteria. Industry averages consider all companies in an industry, not just the top five.
Sources: REL Consultancy Group, Piranha Web

To benchmark your company using REL’s methodology, go to www.relconsult.com.

2002 Working Capital Survey Charts

Click on an industry below to view how the companies measure up.


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