Working Capital

Booz & Co, the recently re-named consulting firm, has a new Working Capital Profiler on its web site. It comes pre-loaded with company data for the most recently reported four quarters [those ending up to 29th November 2008]. At present, the Profiler only covers US-based companies. In the retail sector, that amounts to a little under 100 organisations, including the leading US retailers of consumer electronics: Amazon, Best Buy, Costco, Office Depot, OfficeMax, Radioshack, Staples and Wal-Mart.

The tool does not explain exactly how the calculations for Receivables Days, Payables Days and Inventory Days are calculated. As there is certainly more than one way to make these calculations, a little more transparency would be good. Nevertheless, as Booz applies the same formula to each company, the real benefit of the tool is comparing individual companies with their peer group.

As an example, the numbers for Best Buy show that compared to its retail peers [and that's not just those in the consumer electronics business, it's in comparison with the whole retail segment], it could improve Receivables Days by 8, when compared with the performance of the top quartile and Inventory Days by 12, whereas Best Buy's Payables Days are already well within the top quartile. Overall, Best Buy's Working Capital Days, or Cash Conversion Cycle, if it were based on average top quartile numbers, could improve from a positive 13 Days to negative 7 days. According to the Booz Working Profile Calculator, that would be the equivalent of reducing Best Buy's working capital needs by over $2bn...