Following is an excerpt from our recently published whitepaper, Noetix Analytics for Working Capital: Free up cash and improve shareholder return. To read the entire whitepaper, visit [Download not found].
Key Working Capital Performance Metrics
In an attempt to simplify and standardize working capital metrics, many working capital measurement solutions are based on externally available financial data which can only be used to compute working capital performance for the company as a whole. Key working capital performance metrics are listed in the table below:
Since purchases are typically not an externally reported figure, many working capital solutions standardize on sales in the formulas above when calculating DSI and DPO. This can not only significantly understate DSI, DPO, and misstate CCC, but also make more granular measurements of DPO difficult, if not impossible, because sales are not typically measured by supplier, especially when purchased items are used in multiple products.
For working capital metrics to be actionable, they need to be measured along relevant dimensions: for DSO, sales and receivables need to be measured by customer, sales representative, and collector; for DSI, inventory and cost of goods sold need to be measured by product, warehouse, and planner; and for DPO, purchases and payables need to be measured by vendor, item, and buyer. Hierarchies such as customer category, channel, sales territory, product line, geography, item category, commodity, and supplier category can be used to summarize and facilitate drill-down reports to increasingly actionable levels of detail. Noetix Analytics for Working Capital does precisely this. By leveraging your operational sales, inventory, and procurement data, Noetix Analytics for Working Capital helps customers pinpoint specific opportunities to free up cash, accelerate cash flow, and improve return on investment based on specific customer, product, warehouse, and vendor performance.