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Hackett Research: Largest U.S. Companies Improve Working Capital Performance in 2021 as Revenue, Profit Margins, And More Bounce Back to Pre-Pandemic Levels
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The Hackett Group (NASDAQ: HCKT) released its 2022 Working Capital Survey, revealing that despite improvements in working capital management, excess working capital opportunities grew by 28% to $1.7 trillion. Major metrics showed positive trends: DPO increased by 0.5% to 62.2 days, DSO improved by 2% to 40.6 days, and DIO decreased by 2% to 55.7 days. Revenue surged by 22%, contributing to a 12% rise in EBITDA margins. However, companies face ongoing challenges like high inflation and interest rates, necessitating robust working capital strategies.
Positive
Revenue increased by 22%, indicating strong market recovery.
12% improvement in EBITDA margins, a positive sign of profitability.
All three major working capital metrics improved: DPO up 0.5%, DSO down 2%, DIO down 2%.
Negative
Total excess working capital rose to $1.7 trillion, up 28% from $1.29 trillion in 2020.
Ongoing uncertainties include high inflation, growing interest rates, and geopolitical issues.
Despite Performance Gains in Payables, Receivables, and Inventory, Improvement Opportunity Grew by 28%, to $1.7 Trillion
MIAMI & LONDON--(BUSINESS WIRE)--
For the first time in a decade, the 1000 largest public companies in the U.S. improved performance of all three major working capital components last year – they managed inventory more effectively, collected from customers faster, and took longer to pay suppliers, according to the 2022 Working Capital Survey from The Hackett Group, Inc. (NASDAQ: HCKT). But despite this triple improvement, the overall working capital improvement opportunity increased substantially.
The Hackett Group®’s 2022 Working Capital Survey is currently featured on CFO.com. A summary of the research findings, including detailed industry analysis and working capital improvement recommendations, is available on a complimentary basis, with registration, at this link: http://go.poweredbyhackett.com/wcs22sm.
After a tumultuous year in 2020, which saw major operational and financial disruptions across most industries, performance and liquidity did more than just move back to pre-pandemic levels in 2021. The three key measures of working capital – days payables outstanding (DPO), days sales outstanding (DSO), and days inventory outstanding (DIO) – all trended positively for the year. DPO improved by .5%, from 61.9 days to 62.2 days. DSO improved by 2%, from 41.7 days to 40.6 days. Finally, DIO improved by 2%, from 56.7 days to 55.7 days.
Spurred by a 22% increase in revenues as companies bounced back from the early stages of the pandemic, companies also saw a 12% improvement in EBITDA margins, a dramatic increase following a 4% drop in 2020. “Companies managed to remain profitable despite raw material and labor pressure, accelerating their digital transformation to improve productivity, and reconfiguring their offerings to maintain profitability,” said The Hackett Group Director István Bodó.
Excess working capital grew substantially in 2021, far outpacing the revenue increase. According to The Hackett Group’s analysis, the top 1,000 companies have nearly $1.7 trillion tied up in excess working capital. That’s up 28% from $1.29 trillion in 2020. The opportunity includes $627 billion in inventory, $533 billion in receivables, and $498 billion in payables.
Top performers by industry now convert cash more than 3x faster than typical companies (15.8 days versus 46.2 days). They collect from customers 43% faster (in 27.8 days versus 48.7 days), hold 58% less inventory (28.1 days versus 67.7 days) and take 50% longer to pay suppliers (76.6 days versus 51.2 days)
Cash on hand as a percentage of revenue fell by 23% last year, after a sharp increase to 13% in 2020, putting it now back near pre-pandemic levels. Companies also saw a 17% decrease in debt as a percentage of revenue, indicating that companies have been using the cash they have hoarded during the pandemic to enhance their operational and financial performance.
“The improved metrics of 2021 are encouraging, but they are contrasted by a significant increase in total excess working capital,” said The Hackett Group Director Shawn Townsend. “That opportunity -- combined with ongoing uncertainties and disruptions ranging from high inflation, growing interest rates, geopolitical issues and the ongoing pandemic -- means that companies cannot take their foot off the gas when it comes to working capital management. Prudent companies will not just fine-tune their inventory, receivables, and payables strategies. They will also double down on capabilities for managing working capital health – increasing their visibility into key indicators, sharing information better across functions, and automating processes – to enable agility amid continuing change.”
About The Hackett Group
The Hackett Group, Inc. (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking firm to global companies, offering digital transformation, including implementation of leading enterprise cloud applications, workflow automation and analytics that enable Digital World Class™ performance.
Drawing from our unparalleled IP from nearly 20,000 benchmark studies with the world’s leading businesses – including 97% of the Dow Jones Industrials, 94% of the Fortune 100, 70% of the DAX 30 and 51% of the FTSE 100 – captured through our leading benchmarking platform, Quantum Leap® and our Digital Transformation Platform (DTP), we accelerate best-practice implementations.
This release contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Statements including without limitation, words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” seeks,” “estimates,” or other similar phrases or variations of such words or similar expressions indicating, present or future anticipated or expected occurrences or outcomes are intended to identify such forward-looking statements. Forward-looking statements are not statements of historical fact and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include without limitation, the ability of The Hackett Group to effectively market its digital transformation and other consulting services, competition from other consulting and technology companies that may have or develop in the future, similar offerings, the commercial viability of The Hackett Group and its services as well as other risk detailed in The Hackett Group’s reports filed with the United States Securities and Exchange Commission. The Hackett Group does not undertake any duty to update this release or any forward-looking statements contained herein.
What does The Hackett Group's 2022 Working Capital Survey reveal about working capital management?
The survey indicates that while working capital metrics improved, the overall excess working capital opportunity increased by 28% to $1.7 trillion.
How much did revenue and EBITDA margins improve according to the 2022 Working Capital Survey?
Revenue increased by 22%, and EBITDA margins improved by 12% in 2021.
What are the trends in working capital metrics for The Hackett Group's 2022 report?
The report shows Days Payables Outstanding (DPO) increased by 0.5% to 62.2 days, Days Sales Outstanding (DSO) improved by 2% to 40.6 days, and Days Inventory Outstanding (DIO) decreased by 2% to 55.7 days.
What challenges are companies facing despite improved working capital metrics?
Companies are facing high inflation, growing interest rates, and geopolitical issues that could impact working capital management.
