Net working capital (NWC) represents the greatest opportunity for companies to create value in 2020. Measured by return on investment capital (ROIC), value creation has historically been leveraged by pumping up creditor days and through careful EBIT management. And, prima facie, there are no alarm bells ringing calling for change. In fact, average ROIC is at a 5-year high. So why change tack now?

The figures are a mixed bag. Days payable, sales, and inventory outstanding (DPO, DSO, DIO) have all inflected downwards and have continued so for 2 consecutive years, fractionally nudging NWC days downwards. However, excluding industrial manufacturing and energy shows a 1.7 NWC day increase. The picture is one of a dogged focus on profitable growth; one in which companies stockpile ahead of forecasted growth and bloat inventories with obsolete stock; one of value chain lengthening as opposed to shortening.

PwC Working Capital Report 2019/20, pp. 6

Releasing value tied up in NWC days will become increasingly important as investment ability tends toward necessary. Global uncertainty and continued demand to technologically develop mean agility is high on the agenda, and freeing up working capital will enable it.