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Too few companies focused on improved working capital in 2013: Ernst & Young

Working capital management is too often a reactive, month-end exercise.


TORONTO—While 80% of Canada’s financial executives remain focused on increasing operational efficiency and reducing costs in 2013, only 53% are looking at ways to improve working capital –the cheapest source of incremental cash flow–, according to the results of a Canadian Financial Executives Research Foundation (CFERF) study sponsored by Ernst & Young.

The Working capital optimization report found 48% of companies undertook a working capital improvement program and, of those that did, 69% said they achieved a high success rate.

Businesses remain highly focused on cost reduction (80%), profitability improvement (75%) and system implementations (50%), but the findings suggest that a balanced approach to managing competing priorities can generate significant returns.

“The importance of effective working capital management is often overlooked,” says Michael Conway, president of Financial Executives International (FEI) Canada. “Skillful cash management and good cash forecasting are keys to the successful financing of any enterprise.”

The survey also found companies that tended to be more proactive – those executing improvement initiatives, reviewing performance more frequently and reporting more accurate cash forecasts – were the ones that placed high importance on working capital management.

“The impact of cash flow should ultimately be ingrained in all initiatives,” says Simon Rockcliffe, senior manager, working capital advisory services at Ernst & Young. “Anything from renegotiating supplier contracts to reducing manufacturing waste can have an impact on working capital performance.”

Too often, working capital management becomes a reactive, month-end exercise, adds Rockcliffe.

“While there’s no silver bullet for improving working capital performance, every organization should adopt a tailored approach if they hope to enhance overall business performance.”

The study comprises the results of an online survey of Canadian financial executives in November 2012. Further insights were gathered at executive roundtables in Toronto and Montreal. More than half (56%) of respondents were CFOs, and 17% held the title of VP Finance. Respondents were drawn from a wide range of industry groups and sectors. Of respondents, 55% were from private companies, and 35% from public.