FEI Daily | 02/9/2018
by Terence Leung, AVP Solutions, Greenlight Technologies

Devising and maintaining a successful working capital plan could make or break 2018.

Working capital — essentially a measurement of corporate operating liquidity — has always been a key metric in determining if a company is run efficiently by investors and other stakeholders. But for senior-level financial executives faced with stark tax, financing and capital expenditure choices, devising and maintaining a successful working capital plan could be a make or break career imperative in 2018.

Balancing working capital and a decent cash flow has not been an easy practice for many companies heading into 2018.

Increased leverage, maintaining cash by cutting investments and squeezing the payables cycle has become the norm for many companies, according to the most recent Working Capital Report issued by PwC. In addition, U.S. companies in particular have fared poorly in terms of working capital management when compared to other regions, according to EY’s most recent study, adding that the average cash conversion cycle for U.S.-based corporations increased by 4 percent in 2016.

The result is that several senior financial leaders have already pledged that getting working capital to run as efficiently as possible is a top priority for 2018.

In an analyst call this month, Honeywell’s CEO Darius Adamcyk said that a focus on working capital was one of the “two major highlights” that the firm’s senior leadership discussed in a 2018 kick off meeting.

“In terms of priorities for 2018, I’d say out of the two or three for the year that number one is working capital,” Adamcyk said. “We want to drive free cash flow. We want to drive free cash flow conversion.”

“We’re in the early stages of our working capital initiatives, but we’re encouraged by the progress so far and more importantly by the opportunities that we intend to pursue in 2018,” added Honeywell’s CFO Thomas A. Szlosek in the same call, explaining that the company had “very strong” fourth-quarter free cash flow and the financial suite is hoping to get another 0.5 point of working capital returns in 2018.

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