(11 March 2025 – Global) Working capital constraints are set to become more ingrained as CFOs and treasurers respond to President Donald Trump’s “beautiful” tariffs on exports to the US, placing significant pressure on under-capitalised enterprises in particular.
Bloomberg reports in the latest edition of Bloomberg’s CFO Briefing one key metric that is trending higher is inventory. Automakers, industrial firms and retailers are stockpiling key products and components in anticipation of rising trade barriers.
Working capital, defined as the funds underpinning regular operations, will likely expand. While that might not be a problem for cash-rich businesses, it could pressure less fortunate peers and place key accounting ratios in the spotlight.
Two other factors are also critically important:
- DSO: “Days Sales Outstanding”
- Gauging how long it takes a company to collect payments.
- DPT: “Days Beyond Term”
- Monitors how late a company pays its bills.
Tariffs can drive up these inputs if companies discover they are not able to pass on additional costs to clients in the form of higher prices or witness sales decline if they do raise prices.
“Companies suddenly faced with less money on hand will naturally try to hold on to their cash as long as they can, often resulting in payment delays” commented Bloomberg Senior Editor and Bloomberg CFO Briefing Host, Nina Trentman.