The 2020 – 2021 financial year saw $5.5 billion additional working capital locked up in the Australian market. McGrath Nicol’s 2021 Working Capital Report revealed this along with many other points as they profiled the working capital performance of 137 ASX listed companies.
These companies span across seven capital intensive industries and have a combined market capitalization of $1 trillion.
The report found that ‘Days Working Capital (DWC) increased by 3.1 days in 2021, tying up an additional $5.5 billion in cash. Average DWC increased in six of the seven sectors, and in 56% of all sampled companies.
The DWC increase was driven by operators collecting cash from their customers more slowly (higher Days Sales Outstanding or DSO) and holding more inventory (higher Days Inventory Outstanding or DIO). To partly offset this, our sampled companies paid their suppliers more slowly (higher Days Payables Outstanding or DPO).’
With $5.5 billion additional cash locked up in these seven working capital intensive sectors, it must be reflected by default in the SME space.
See the full McGrath Nicol 2021 Working Capital report here or navigate to your desired industry report below.
See also McGrath Nicol’s considerations for 2022 here.
Ledge Finance comments that as per the report by McGrath Nicol, 2021 saw an uplift in activity across the economy following the flatter conditions associated with the first wave of COVID-19 in 2020. It’s interesting to note that that the average revenues increased by 8.6% across the sample of companies in 2021, with 69% of operators reporting revenue growth.
The three sectors with the largest uptick in revenues were Mining & Resources, Agriculture and Retail, driven by a mix of higher commodity prices and offshore demand, higher production yields, and consumers directing spending away from travel and recreational activities to retail. Ledge observations has been that WA has evidenced this with strong demand across all these sectors through 2021.
Although the report only sampled 137 ASX listed companies in the Agriculture, Building Products, Construction & Engineering, Food & Beverage, Mining & Resources, Retail and Transport & Logistics sectors, with the analysis of Days Working Capital (DWC) increase by 3.1 days, across six of the seven sectors and in 56% of all sampled companies. It would be fair to assume that the WA SME market is experiencing the same working capital lock up, if not even more, with increase in inventory levels being held as a result of the supply chain squeeze.
Utilizing the correct working capital/trade finance facility is essential to support your business. If you would like to know more, please speak to a Ledge Account Executive directly or contact our offices here.
Please note the information provided here is general in nature and does not constitute financial, tax or other professional advice. You should consider whether the information is appropriate for your needs and seek professional advice prior to making any decisions.
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