Issue link: https://read.dmtmag.com/i/70749
52 • JULY 2012 • WORLD FENCE NEWS Flash back almost three years ago, to the "technical" end of the Great Re- cession in June of 2009. The depth of the financial crisis was just beginning to be felt, and banks were tightening the reins on credit, which resulted in a credit crunch that made it nearly im- possible for many businesses to obtain the capital they needed to grow, much less keep their operations going. In this environment, cash conser- Current trends in working capital management BY TRACY EDEN vation became the name of the game for many CFOs. To try to squeeze more cash out of their supply chains, businesses focused on tightening col- lection of receivables, stretching out Dura Hedge Maintenance-Free Privacy Hedge • CREATES A BEAUTIFUL HEDGE-LIKE APPEARANCE ON ANY CHAIN LINK FENCE • OFFERS THE MOST PRIVACY OF ALL LATTICE PRODUCTS ON THE MARKET TODAY • INSTALLS ON MOST MESH SIZES • NO TOOLS OR LOCKING PIECES REQUIRED Call today for product specifications and pricing information! Dealerships available! Artificial Landscaping Concepts Artificial Landscaping Concepts 840 Broadway • Newburgh, NY 12550 (800) 962-1010 • Fax (845) 561-2958 www.artlandco.com ™ their payables and reducing inventory. A different scenario Now, fast forward to today. Ac- cording to the data revealed in the 2011 CFO/REL Working Capital Scorecard, U.S. businesses are now flush with cash. As a result, the em- phasis on wringing every dollar out of working capital seems to have dissi- pated somewhat. For example, the scorecard re- vealed a paltry 2% decrease in days working capital (DWC). Meanwhile, days sales outstand- ing (DSO) declined by just 0.1% and days inventory outstanding (DIO) and days payable outstanding (DPO) both rose by just 1.1%. These modest improvements in working capital performance seem to indicate that the emphasis by U.S. businesses has shifted from working capital improvements to sales growth and profit enhancement. "The energy and focus have now been placed much more on the profit- and-loss statement," noted Mark Ten- nant, a principal with REL, which co-sponsored the research. "There isn't a continuous focus on cash flow and working capital." Meanwhile, business lending ac- tivity appears to be on the rise. Data recently released by the FDIC reveals that overall commercial and industrial (C&I) lending by banks increased dur- ing each of the five quarters preceding third-quarter 2011 after declining steadily since early 2008. And the growth rate in borrowing A new mindset? So, do improved corporate bal- ance sheets, a brighter business lend- ing picture and an improving economy mean that CFOs should adopt a new mindset when it comes to working capital management? My answer: Not necessarily. In fact, statistics like those noted here could lead CFOs to adopt a false sense of security. In the article posted on CFO.com reporting on the results of Working Capital Scorecard, Stephen Payne, America's leader of working capital advisory services at Ernst & Young, stated that corporate balance sheets may not be nearly as impervious as they seem. Despite an impressive recent comeback in corporate productivity, high unemployment continues to plague the economy, Payne noted. To produce sustainable growth, compa- nies will "have to hire people and in- vest via capex, and that's going to start depleting their cash hoards," he said. I would add that, while there have been recent signs of improvement in the U.S. economy, we're by no means out of the woods yet. While positive, economic growth remains anemic, es- pecially compared to most other post- recession rebounds. And unemployment remains stubbornly high, despite some recent improve- ments in the employment picture. Finally, while the Small Business Lending Index points to positive signs for business lending, more FDIC data paints a different long-term picture: The overall volume of small business loans (defined as loans of $1 million or less) has been shrinking since 2008 and was down 15 percent from its peak as of September 30, 2011. There were just 1.5 million small Many items in stock - caps, finials, rings, wall mounts, column bases ….. Custom made parts Short volume runs In-house tool & die shop Phone: 301-334-9100 Fax: 301-334-7846 www.cpalmerdiecastinginc.com business loans outstanding at this time, the smallest number since 1999, ac- cording to the FDIC. Now, contrast these figures with the latest Asset-Based Lending Index, which is published quarterly by the Commercial Finance Association. There was a 1.5% increase in total committed credit lines in the third quarter of 2011 from the previous quarter, which was the fourth consec- utive quarterly increase in asset-based credit lines. Total asset-based credit commit- ments grew by 5% compared to the third quarter of 2010, and new continued on page 54 among small businesses (as measured by the Thomson Reuters/PayNet Small Business Lending Index) in- creased by double digits over the pre- vious year for the 17th consecutive month in December.