As VALURA, we have analyzed hundreds of companies in the last eight years. We have seen companies experiencing profitability problems, negative or unreal return on equity, imbalances between revenue statements and balance sheets. None of these performances lead to bankruptcy.

The main problem is the long cash conversion cycle, insufficient net working capital, the performance of liabilities, receivables, and stock as well as the relationship between them. When the Cash Conversion Cycle (days) gets longer, it leads to an unhealthy financial structure. The most important priority of the management should be to manage the working capital and cash conversion cycle.

A global study conducted by PWC reveals that its results are in line with the VALURA System data. Let us look at the figures.

* The global average cash conversion cycle is 46 days for all companies, and it is 97 days for SMEs.
* Large companies have an inventory cycle of 30 days which is shorter than small companies.
* Defense and aerospace companies have the longest cash conversion cycle with 108 days while transportation and logistics companies have the shortest cycle with 34 days.
* As the cost of capital increases, the importance of working capital increases as well.
* Fixed asset investments/turnover ratio has decreased by 15% in the last 4 years.

To conclude, companies should identify their number one priority as improving their net working capital and cash conversion cycle to achieve sustainable and profitable growth.

Gökhan Acar / CEO

Share :