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Half of Singapore's business sectors see working capital performance worsen: study
WORKING capital performance in half of Singapore's business sectors has deteriorated year on year (y-o-y), with medium-sized companies struggling the most in managing their working capital, a joint study by PwC Singapore and Spring Singapore has found.
According to the Singapore Working Capital Study 2017 launched by the two parties on Thursday, the drag in performance was due to an increase in the time taken to collect cash from sales and an inventory increase, partially off-set by an increase in the time to pay creditors that might not be sustainable in the long term.
The working capital study looked at over 1,000 public and private companies across 15 industries in Singapore.
Of the 15 industries surveyed, seven managed to improve their net working capital (NWC) days y-o-y, two barely maintained their performance and the remaining six saw their NWC days deteriorate, the study found.
NWC days measure the liquidity of a business and how long it takes to convert its working capital into revenue. The longer the cycle is, the longer a business is tying up capital in its working capital without earning a return on it.
The study identified some sectors that struggle more than others, including energy & chemicals which suffered significant revenue loss (-25 per cent y-o-y) while struggling to manage their receivables (+29 per cent y-o-y) and inventory (+38 per cent), and tried to partially counterbalance their cash constraints by increasing their days to pay.
Another struggling sector is information and communications technology & media, which the study said is "due for wakeup call" with a 41 per cent increase in NWC days.
However, the sector is still holding out with a relatively low 17 NWC days.
"This drastic increase in NWC days demonstrates the importance of constant vigilance over cash management," the study said.
The study also found that company size matters when it comes to managing working capital.
Very large companies performed best with the highest ratio of working capital to sales at 8 per cent, followed by small companies at 14 per cent and large companies at 15 per cent.
Medium-sized companies, with revenues between S$10 million and S$100 million, struggle the most in managing their working capital with the highest ratio at 18 per cent.
One reason given in the study was higher cost for growth, which increases their difficulty in accessing funding at favourable rates.
"They find themselves battling for cash while having little negotiating power. Inadequate proficiency in managing a growing business coupled with lagging tools and systems can also add to poor performance."
PwC and Spring added that against a backdrop of increasing interest rates and volatile economic environment, businesses in Singapore need to focus on improving their cash management to mitigate risks, fund their day-to-day operations and finance their growth plans.