This Day On The Street
Continue to site
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

US Companies Continue To Play Year-End Games With Receivables, Payables, And Inventory

Many large U.S. companies continue to try and "game the system" at year-end, artificially improving their balance sheets by manipulating receivables, payables, and inventory, according to a new study from REL, a division of The Hackett Group, Inc. (NASDAQ: HCKT). Their efforts, which can range from deep discounting and extended payment terms on sales to simply "losing" supplier bills, do have a positive impact in Q4, the study found. But these companies pay a harsh price in Q1, when working capital performance bounces back to even worse levels than before.

According to REL's research, which examined the working capital management performance of 979 of the largest publicly-traded companies in the U.S., nearly half of all companies in the study showed evidence of year-end gamesmanship. These companies improved working capital performance by 10 percent in Q4 2011, adding $52 billion to their balance sheets, or an average of $111 million per company. But in Q1 of 2012, these same companies saw working capital rebound dramatically, worsening by 11 percent, or $53 billion, an average of over $113 million per company.

REL's research found that companies which play year-end games with working capital can get quite creative in their cash flow management approaches. To boost receivables, they often increase incentives for sales staff and extend payment terms to get customers to buy more. At the same time they strong-arm other customers into paying early. On the payables side, they take a wide range of actions that put tremendous strain on their supplier relationships. In many cases, they suddenly start finding discrepancies in supplier invoices, or other excuses to delay payment. Some simply tell suppliers 'the check's in the mail,' even if it isn't, or delay receipt of goods they have already ordered. To reduce inventory, these companies sometimes take the dramatic step of shipping orders early, regardless of when the customer has asked for them. In addition to all this, these same companies often keep their factories running at full capacity whether they need to or not, so they can claim higher operational efficiency and effectiveness.

REL has been tracking the practice of year-end gamesmanship since 2005. Significant evidence of year-end gamesmanship was found in each year's working capital results, with the exception of 2008 and 2009. In these two years companies were struggling with the impact of the recession and many were left with significant excess inventory and uncollected receivables at year-end. REL experts had hoped to see evidence that during the recession companies had put procedures in place to eliminate year-end gamesmanship. But that does not appear to have happened. Instead, in 2010 and 2011 companies went back to the same practices they had pre-recession.

1 of 3

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
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.02 -2.67%
FB $104.07 -5.81%
GOOG $683.57 -3.45%
TSLA $162.60 -7.26%
YHOO $27.97 -4.05%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs