Question

Assume that you are a financial analyst at a mid-sized energy company and one of the new managers is confused about the following statement in the 2019/20 PwC Working Capital Report, having never had a finance or accounting course.

"Industrial manufacturing, Entertainment & Media, Energy and Metals & Mining [industries] have improved overall working capital performance despite a reduction in DPO. This suggests that these sectors are seeing the benefits of a more holistic approach to working capital improvement."

In about 5-6 sentences help the manager to understand the basic meaning and importance of this statement

Answer 1

Working capital is the day to day requirement of cash in a business that is recieved from the customers and paid to the suppliers. DPO (Days Payable Outstanding) refers to the credit time which is allowed by the supplier for the payment of dues. A balance has to be struck between paying dues too early that affects the working capital (cash at hand) and paying dues too late that damages reputation. These aforesaid industries have reduced the time taken to pay off dues to suppliers yet managed to improve working capital management. This is because they have adopted a more wholesome , all-round approach where all the inter-related subdivisions' cash requirements are taken in to consideration. Usually this is achieved by outsourcing to banks that collect all the data and create customized optimum solutions.