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Working Capital Health Check and Benchmarking

Working Capital Health Check - BenchmarkWorking capital is the blood of any businesses, no matter what the size is. Therefore, performing a healthy check of your business is just like regularly checking of your own blood tension; diagnosing the symptoms will raise an initial clue, if you’re okay or not. To know whether your businesses are okay or not, you would need to perform a working capital health check. To be able to check your working capital health, you would need to understand how your working capital works. By understanding the metrics, you will be able to score it, finally you can compare your company’s score with the industry benchmark.


1. Days Sales Outstanding [DSO]

Year-end trade receivables net of allowance for doubtful accounts, plus financial receivables, divided by one day of average revenue.

Symptoms and Diagnose: A decrease in DSO represents an improvement, an increase a deterioration. In the accompanying charts, companies marked with an asterisk have securitized receivables, which improve DSO through financing alternatives without improving the underlying customer to cash processes such as credit-risk assessment, billing, collections, and dispute management.

2. Days Inventory Outstanding [DIO]

Year-end inventory divided by one day of average revenue.

Symptoms and Diagnose: A decrease is an improvement, an increase a deterioration.

3. Days Payables Outstanding [DPO]

Year-end trade payables divided by one day of average revenue.

Symptoms and Diagnose: An increase in DPO is an improvement, a decrease a deterioration.

4. Days Working Capital [DWC]

Year-end net working capital (trade receivables plus inventory, minus AP) divided by one day of average revenue.

Symptoms and Diagnose: The lower the number of days, the better. The percentage change is marked N/M (not meaningful) if DWC moved from a positive to a negative number or vice versa.

The 2009 Working Capital Benchmark

Scoring your DSO, DIO, DPO and DWC is just like knowing your blood pressure without knowing whether it is normal or abnormal. You would need to benchmark them, comparing your score with the industry average. Here I post “The 2009 Working Capital Benchmark” which is adapted from a survey reported by on their publication titled “The 2009 Working Capital Scorecard”, with simplification that I use the data “median” only. uses the Global Industry Classification Standard [GICS] to categorize companies.

1. Industry Category: Aerospace and Defense


Median: [59] [53] [27] [85]
Sample [Companies]:
[-]. Spirit Aerosystem Holdings
[-]. Northrop Grumann

2. Industry Category: Airlines


Median: [9] [6] [15] [0]
Sample [Companies]:
[-]. US Airways Group
[-]. Continental Airlines

3. Industry Category: Auto Components


Median: [46] [31] [45] [32]
Sample [Companies]:
[-]. Goodyear Tire & Rubber
[-]. Federal Mogul

4. Industry Category: Biotechnology


Median: [58] [35] [12] [81]
Sample [Companies]:
[-]. Life Technologies
[-]. Celgene

5. Industry Category: Building Products


Median: [37] [36] [23] [50]
Sample [Companies]:
[-]. Quanex Building Product
[-]. Armstrong World Industries

6. Industry Category: Chemicals


Median: [47] [44] [27] [65]
Sample [Companies]:
[-]. Dow Chemical
[-]. Terra Industries

7. Industry Category: Communication Equipment


Median: [47] [31] [26] [53]
Sample [Companies]:
[-]. Palm
[-]. ADC Telecommunications

8. Industry Category: Computer Peripherals


Median: [52] [22] [40] [34]
Sample [Companies]:
[-]. Apple
[-]. Teradata

9. Industry Category: Containers and Packaging


Median: [38] [43] [31] [50]
Sample [Companies]:
[-]. Crown Holding
[-]. Sealed Air

10. Industry Category: Diversified Telecommunication Services


Median: [36] [3] [22] [17]
Sample [Companies]:
[-]. AT&T
[-]. Verizon Communications

11. Industry Category: Food Products

Median: [25] [39] [29] [35]
Sample [Companies]:
[-]. Kellogs
[-]. Dean Foods

12. Industry Category: Healthcare Equipment, Supplies


Median: [59] [50] [19] [89]
Sample [Companies]:
[-]. West Pharmaceutical Svcs.
[-]. Invacare

13. Industry Category: Household Product


Median: [38] [37] [28] [47]
Sample [Companies]:
[-]. Procter & Gamble
[-]. Energizer Holdings

14. Industry Category: Industrial Conglomerates


Median: [46] [44] [29] [61]
Sample [Companies]:
[-]. McDermott Int’l
[-]. General Electric

15. Industry Category: Metals and Mining


Median: [24] [44] [19] [48]
Sample [Companies]:
[-]. Southern Copper
[-]. Century Aluminum

16. Industry Category: Multiline Retail


Median: [3] [61] [23] [41]
Sample [Companies]:
[-]. Nordstrom
[-]. Retail Ventures

17. Industry Category: Paper and Forest Product


Median: [28] [43] [22] [49]
Sample [Companies]:
[-]. Louisiana Pacific
[-]. Verso Paper

18. Industry Category: Pharmaceuticals


Median: [56] [35] [21] [70]
Sample [Companies]:
[-]. Johnson & Johnson
[-]. Watson Pharmaceuticals

19. Industry Category: Software


Median: [74] [0] [11] [63]
Sample [Companies]:
[-]. Intuit
[-]. Parametric Technology

20. Industry Category: Specialty Retail


Median: [4] [52] [24] [32]
Sample [Companies]:
[-]. Gamestop
[-]. Marinemax

Health check and benchmark your working capital now!

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