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CFO.com Working Capital survey. Not all bad….

August 15th, 2008

From the first summary read on the 2008 Working Capital scorecard that was published on CFO.com yesterday, you would think that the majority of the companies fell short of expectations. At a top level, working capital levels increased by 1% versus the prior year levels. Considering that these results were through the end of 2007, there was certainly an opportunity for things to deteriorate a bit more in the 4th quarter. However, what is not reflected in the summary is that these results are for only European-based companies. While they obviously have their U.S. results on a consolidated basis, which we would have been a part of the Schneider Electric figures, the figures recently released are absolutely European-centric. These results do not reflect a full global economic slowdown, as we are now starting to see.

Getting into details of the results a bit more, DSO levels have continued to fall over the last 2-years by 4.1% and 3.6%, respectively. However, this is on the heels of revenue increases of 7.4% and 10.3%, respectively, over the same period.
Interesting enough, Gross Margins were flat over the last 2-year at 32.7% and 32.6%, respectively. Considering the increase in sales, it is a concern that Inventory levels (DIO) was up 3.5% this year versus a 2.5% decrease last year. It certainly tables some interesting questions about whether growth expectations were even higher than results or if there were shifts within product offerings that left companies with an improper mix. Also interesting is the fact that gross margin levels have only fluctuated by 0.1% over the last five years with a range of 32.6% to 32.8%.
With respect to Payables, DPO increased by 1.9% in the most current year versus a 4.2% decrease in the prior year. At the current level of 45.6 days versus 44.8 in the prior year, it’s not a huge push still not as high as the 2005 level of 46.8 days.

One of the more notable figures in the scorecard released by CFO.com is the change in EBIT levels over the last 5-years. Revenue levels have increased by approximately 7.9% per year while EBIT levels have increased by approximately 18.8% annually. EBIT levels among the participants has been achieved through an effective leveraging & control of operating expenses rather than increased performance in product margins. It would be interesting to look at 2008 Working Capital proforma results with a flat to low-single digit sales increase. Also, in further review of the study, there was a huge range in results among the participating countries with respect to a total DWC metric. But we’ll dive into those comparisons in a later post…..
Thanks for reading . . . .

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