The largest U.S. companies saw their ability to extend payments to suppliers, collect from customers and manage inventory degrade in the first half of 2023, according to new working capital research from The Hackett Group, Inc. (NASDAQ: HCKT). The research provides further evidence of the trend that has been emerging over the past year – that buyers have lost leverage with suppliers and can no longer simply delay payments to improve their own balance sheet. Rising inventories for utility and semiconductor and equipment companies played a major role in the degraded inventory performance.
An analysis of data from 1,000 of the largest U.S. public companies by The Hackett Group® comparing performance in Q2 2023 with Q2 2022 found the most significant decline in days inventory outstanding (DIO), which deteriorated by 7.1% (from 47.2 to 50.5 days). Oil and gas, telecommunication equipment, utilities, and recreational products showed the greatest degradation in inventory performance. Days payables outstanding (DPO) performance declined by 2% (from 55.8 to 54.7 days), led by degraded purchase-to-pay performance in textiles, apparel and footwear, machinery, and consumer durables. Days sales outstanding (DSO) showed marginal degradation of 1% (from 39.8 to 40.2 days), with pharmaceuticals, biotechnology and medical specialties, and services leading the list of industries where performance worsened the most. Overall cash conversion cycle, which aggregates DIO, DPO and DSO performance, deteriorated by 15.4% (from 31.2 to 36 days).
Companies also saw liquidity metrics stabilize after hitting record highs in Q2 2022. Operating cash flow as a percentage of revenue increased by 12.1% in the first half of 2023, while earnings before interest, taxes, depreciation and amortization (EBITDA) margin declined by 8.7%. Net income margin declined by 12.6%. An analysis of operational metrics found that despite the increasing cost of debt, companies increased cash on hand as a percentage of revenue by 1.7% and capital expenditures as a percentage of revenue rose by 15.1%, despite the increasing cost of debt.
The Q2 2023 Working Capital Survey update is produced by The Hackett Group’s Working Capital Management Solutions practice. More information on the practice is available at https://www.thehackettgroup.com/working-capital-management/. An infographic detailing the survey results is also available on a complimentary basis, with registration, here: https://go.poweredbyhackett.com/iv6.
According to The Hackett Group Director James Ancius, “Looking at the overall survey, it’s highly unusual to see all three elements of working capital degrading at the same time. It’s clearly a sign that companies are not highly focused on working capital management. On payables, we’re now seeing even more evidence that the leverage has shifted from the buyer to the seller. Supply assurance has become more important to buyers, and pricing is more critical to them than payment terms. We believe we’ll likely see payables performance at large companies continue to degrade over the coming year.”
The Hackett Group Director István Bodó added, “The significant degradation in inventory performance was also a bit surprising. The balance is likely to change in the second half of 2023, with gas exports picking up. But we’re also seeing increases in inventory in areas like recreational products, which is likely tied to reduced consumer demand, and could be an indication of future softening.”
About The Hackett Group
The Hackett Group, Inc. (NASDAQ: HCKT) is a leading benchmarking, research advisory and strategic consultancy firm that enables organizations to achieve Digital World Class® performance.
Drawing upon our unparalleled intellectual property from more than 25,000 benchmark studies and our Hackett-Certified® best practices repository from the world’s leading businesses – including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100 – captured through our leading benchmarking platform Quantum Leap® and our Digital Transformation Platform, we accelerate digital transformations, including enterprise cloud implementations.
For more information on The Hackett Group, visit: https://www.thehackettgroup.com/; email info@thehackettgroup.com; or call (770) 225-3600.
The Hackett Group, Hackett-Certified, quadrant logo, World Class Defined and Enabled, Quantum Leap, Digital World Class and Hackett Value Matrix are the registered marks of The Hackett Group.
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Contacts
Gary Baker, Global Communications Director - (917) 796-2391 or gbaker@thehackettgroup.com
