This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Most Companies Fail To Accurately Forecast Working Capital Needs And The Cash To Support Them, Says New Study By REL Consulting

Despite a global business environment where companies can be harshly punished by Wall Street for even small missteps in predicting revenue or earnings, most large companies say they cannot correctly forecast operational basics like inventory, receivables, payables, and the underlying cash requirements to support them, according to the results of a new study from REL Consulting, a division of The Hackett Group, Inc. (NASDAQ:HCKT).

According to the REL study, typical companies potentially miss quarterly working capital forecasts (including inventory, receivables, and payables) by up to 23 percent, which amounts to up to $600 million for a typical Global 1000 company (with $29 billion annual revenue).

The new REL performance study, "Working Capital: Successes, Challenges, and 2012 Objectives," found that most companies have been unable to improve the long-term efficiency or effectiveness of their working capital performance over the past decade. Typical large companies in the annual REL 1000 analysis could generate nearly $2 billion in additional cash annually by optimizing working capital management to match the performance of top companies in their industry. This included an opportunity to net over $680 million from optimizing receivables, over $620 million from payables, and over $680 billion from inventory.

"It's disappointing that even after the economic turmoil of the last few years, companies are still struggling to get this key area under control, and failing to drive sustainable improvements in working capital," said Veronica Heald, Director, REL Consulting. "In some ways, forecasting cash is even more critical than forecasting earnings or revenue. You can take a hit quarter after quarter for missing earnings. But you can only run out of cash once. Failures in this area easily lead to everything from the need to turn to emergency credit lines to lost sales and missed opportunities.

"At the same time, it's not surprising to see companies continuing to miss the mark on working capital optimization," said Ms. Heald. "At most companies, finance takes full responsibility for working capital. But truly, optimizing receivables, payables, and inventory requires a cross-functional effort. And often different parts of the organization may have very conflicting interests, and different priorities and goals that prevent them from achieving their working capital goals."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG

Markets

Chart of I:DJI
DOW 16,654.77 +369.26 2.27%
S&P 500 1,987.66 +47.15 2.43%
NASDAQ 4,812.7080 +115.1720 2.45%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs