Large UK companies sitting on £244 billion in working capital

13 October 2016

Improving economic conditions across the UK, as well as keen focus on improving working capital efficiencies, has seen total cash on hand of the country's largest companies rise by 14% since 2010 – now totalling £244 billion. Further improvements to cash reserves by focus on best-practice in Cash to Cash days performance, may create indirect benefits to the UK economy as a whole if returns are effectively re-distributed to companies needing capital for growth.

In a new study from Grant Thornton, titled ‘The UK's cash conundrum’, the firm leverages the Fame database for information regarding the working capital conditions of 2,929 companies, excluding financial services, with revenue of at least £100 million. Through the study, insight is drawn into working capital performance changes.

Cash reserve boost

Uneven growth

While working capital improvements have been booked at a number of companies in a sustainable manner, others, the research highlights, continue to see improving working capital as a ‘project’ – done to ‘massage the books’ or as a means to structuring debt repayments. The firm notes that such ‘tactical’ projects, while meeting short term goals, may damage long-term sustainability by, for instance, irritating suppliers through late payment.

The research highlights that there is considerable variation between top performers (top 10%) and other companies. The companies that focus on implementing best-practice working capital procedures are correlated with improved revenue generation (up 3% compared to 1%) and EBIT margin percentage growth over the same period (up 11% compared to a -2% decrease). Meanwhile, their debt increased by a much lower percentage (9% vs. 12%).

UK five year trend in C2C days

UK five year trend in CSC days

The study results do show a relatively positive trends across UK business towards Cash to Cash days (C2C) improvement. Since 2010 C2C days have fallen from 31.7 to 28.7, delivering considerable boosts to cash reserves. In the past year, for instance, a 0.6 day decrease added £17.2 billion in net working capital.

The analysis also finds that companies have managed to improve their receivables slightly (0.7%) between 2014/15, to 51.3 days. The results are still well outside the average UK terms of 45 days, suggesting considerable improvements can still be made. The biggest improvement however, stems from a reductions to inventory holdings of 1.2% between 2014/15, to an average of 30.9 days. Payables saw slight deterioration of 0.2%, due to, the firm says, the end of the low hanging fruit optimisations that drove previous years’ gains.

YoY % change in C2C days

Changes in CSC days

There are considerable differences between large, medium and small companies in terms of year-on-year changes in C2C days. Small companies see minor improvements of around 2%, while large companies manage to generate the highest improvements at 14%. Medium sized firms, however, face difficulty pushing through best-practice, resulting in a 3% deterioration. The consultancy firm notes that the deterioration may have affected EBIT margin percentages at medium size companies, given their 2.9% drop, compared to 0.2% for small companies and 0.6% for large companies.

C2C quartiles by sector

The research in addition sought to identify major trends between the C2C quartiles for different sectors, finding that considerable disparity exists even within sectors. In the pharmaceuticals industry the difference between top and bottom performers stood at 64 days, while for industrial products it stood at 53 days.

Capital to work

The consultancy firm notes that freeing up and leveraging additional working capital, even with the current £244 billion sitting on balance sheets, has the potential to drive considerable growth for businesses across the UK if that capital were to be released (or redistributed) to support the needs of fast-growth, dynamic corporates – potentially ‘super-charging UK economic growth’.


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