US$460b in liquidity constraints – JPMorgan
(3 July 2019 – United States) The newly launched JPMorgan Working Capital Index reveals up to US$460 billion has been trapped in the cash cycle since 2011 across 19 industry sectors.
The index benchmarks the working capital performance of selected industry verticals by reviewing supply chain liquidity for S&P1500 companies. Technologies such as robotic process automation, data analytics, machine learning and artificial intelligence (AI) was found to have the greatest impact on working capital management.
Sectors that were challenged over the last seven years included aerospace and defence, semiconductors and media. Industries that displayed the most improvement in optimising working capital between 2011 and 2018 were utilities, consumer staples and logistics. Due to generally stronger credit ratings and easier access to capital, the index found that large companies held lower levels of cash, resulting in a gap in cash levels between the top 100 multinational companies in the S&P 1500 and the rest of the firms within the Index. This gap has narrowed over the years, according to the report. The report said industries had undergone a significant transition over the last decade driven by external market forces. With access to capital remaining tight for the foreseeable future, attention is set to move towards working capital optimisation to supplement existing sources of capital. The major US bank released the index because there were currently limited effective benchmarking tools for CFOs and corporate treasurers working in cash optimisation.
“Industry benchmarking is typically the first step for many companies looking to optimize their working capital, but there are limited tools available to do this effectively, primarily because of the lack of access to reliable industry data. We developed the Index to help our clients identify inefficient use of liquidity within their organizations and explore opportunities to improve their internal sources of funding” commented JPMorgan Treasury Services Solutions Asia Pacific Head Gourang Shah.