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Posted February 21, 2013

Business Investment

Only 53% of companies plan to focus on improving working capital in 2013

Cheapest source of incremental cash flow potentially being overlooked

TORONTO - While 80% of Canada's financial executives remain focused on increasing operational efficiency and reducing costs this year, only 53% are looking at ways to improve working capital. That could be a missed opportunity, according to a new Canadian Financial Executives Research Foundation (CFERF) study sponsored by Ernst & Young.

"The importance of effective working capital management is often overlooked," says Michael Conway, Chief Executive and National President of Financial Executives International (FEI) Canada. "Skillful cash management and good cash forecasting are keys to the successful financing of any enterprise."

Working capital optimization, published by CFERF, the research arm of FEI Canada, found 48% of companies undertook a working capital improvement program and, of those that did, 69% said they achieved a high success rate. Although businesses remain highly focused on cost reduction (80%), profitability improvement (75%) and system implementations (50%), the findings suggest that a balanced approach to managing competing priorities can generate significant returns.

"The impact of cash flow should ultimately be ingrained in all initiatives," explains Simon Rockcliffe, Senior Manager, Working Capital Advisory Services at Ernst & Young. "Anything from renegotiating supplier contracts to reducing manufacturing waste can have an impact on working capital performance, so it makes sense to ensure that impact is considered and the results optimized, both in the short- and long-term."

The survey also found companies that tended to be more proactive - by executing improvement initiatives, reviewing performance more frequently and reporting more accurate cash forecasts - were the ones that placed high importance on working capital management.

"Too often, working capital management has become a reactive, month-end or even window dressing exercise," adds Rockcliffe. "While there's no silver bullet for improving working capital performance, every organization should adopt a tailored approach if they hope to enhance overall business performance."

"Finance executives have many competing priorities moving into 2013 and management's time will become ever more precious," adds Conway. "But ensuring a focus on cash and working capital can have substantial payback, rapidly generating liquidity that can be reinvested into the business."

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