Promoting an integrated and value-creating approach to working capital management.

Working capital is often viewed by companies as simply a cost and not a source of value. This leads to management reacting to a “cash squeeze” by cutting working capital expenditure without considering the implications for sales, profitability, and growth. In contrast, there is also a tendency to over-invest in working capital in order to maximize short-term profit.

An integrated and value-creating approach to working capital management should be promoted instead. This approach considers all elements of tied-up capital across the balance sheet, including fixed assets, inventories, receivables, payables, and cash. By considering all of these elements as a whole, it may be possible to identify opportunities for reducing working capital expenditure without negatively impacting sales, profitability, and growth.

For example, a company may invest in a new, more flexible machine as a fixed asset in order to reduce inventories. This can lead to reduced inventory costs, and may also increase productivity, leading to an overall increase in profitability.

In summary, working capital management should not be viewed as simply a cost, but rather as an integrated and value-creating approach that takes into account all elements of tied-up capital across the balance sheet. By taking this approach, companies can find opportunities to reduce working capital expenditure while still maintaining or even increasing sales, profitability and growth.