2018 Working Capital Report
Another Year of Uncalculated Risk
December 12, 2018
As Australians, we pride ourselves on being hard to scare. We might share the country with many of the world’s most poisonous and dangerous animals, but we don’t let fear hold us back.
In business too, Australians don’t shy away from a challenge. Our largest industries – retail, mining and construction – were mostly built on big bets. However, each leap of success was taken with calculated risks. FTI Consulting’s 2018 working capital survey suggests something different is happening now. Business leaders are still taking risks, but our analysis of the top 500 Australian companies suggests that many are handling their working capital in a way that is leaving them increasingly exposed and vulnerable.
As you read through our report, we believe that four points are worth highlighting:
- In the past year alone, Australia’s top 500 companies added $3 billion to their net working capital. Overall, working capital performance declined by 4% over the last five years.
- Debt increased by $1.5 billion in FY2018. Among the companies reviewed, this amounts to an all-time high of $307 billion.
- In all, Australian businesses have $34.3 billion needlessly locked up in working capital. That is, money tied up in too much inventory and low debtors, or paid out to suppliers too early instead of being put to productive use.
- Companies are hoarding cash and reduce investment further down to 7% of revenues.
With interest rates still at historic lows and most industries performing strongly, it’s easy to understand why many companies aren’t particularly focused on their working capital right now. But a number of factors suggest it’s a good time to take a more disciplined.