Perspectives on

Working Capital
A PNC Financial Leadership Survey Report

M
any businesses developed strategies in response to the financial crisis that have become the new norms. The focus
has been on strategically and efficiently managing a company’s assets to contribute to its overall financial health.
PNC’s recent survey of financial decision-makers from businesses nationwide, as well as our own experience with
nearly 34,000 corporate clients, affirms that most companies are actively seeking opportunities to optimize management of
their working capital.
The vast majority (95 percent) of respondents to the PNC 2010 Financial Leadership Survey, which polled more than
400 financial decision-makers, indicated room for improvement in some aspect of their working capital management,
demonstrating that the current economic environment is challenging even the best-performing companies.
So, how can companies find measurable ways to optimize cash management? PNC’s experience with businesses across
the country shows that optimizing working capital and efficiently using assets requires a company to establish a cash
management culture by:
- identifying processes and metrics that measure actual performance against business goals
- developing and executing detailed action plans designed to remedy performance gaps
- ensuring that working capital optimization is not only championed, but embedded into the foundation
and the daily operations of the business
- continuously seeking improvement by tapping expert resources and studying best practices

Focus on Short-term, Controllable Issues
Issues like health care legislation, government spending and
unemployment are out of business decision-makers’ control, so
leaders have turned their attention inward to contain costs and
find ways to run their businesses more efficiently.
Nearly 80 percent of companies surveyed indicate that their
focus is directed to short-term, tactical issues. This suggests that
the slowing economic recovery is fueling a day-to-day approach
to business. However, when asked about their top priorities for
2010, respondents reveal positive indicators, with 80 percent
expecting top-line revenue growth and one-third planning
capital expenditures.
Not surprising, financial decision-makers view raising capital,
hiring, international activity and developing new products as
less of a priority for 2010 given their focus on near-term con-
trollable issues.
said they rely exclusively on internal metrics. Of those, more
than 80 percent believe that external metrics do not relate to
their business, are not credible or are unavailable. This suggests
that the indifference to adopting external metrics is partly driven
by the overall belief that good ones simply do not exist.
Looking closer at the findings, the average company
assesses its management of working capital from the asset
side of the equation using cash-on-hand and accounts receiv-
able days-on-hand. Additionally, about three-in-five look
at return-on-assets. On the liability side, two-thirds track
companies seeking Working Capital
Efficiency value automated processes
... And
... And
Not
Doing It Finding
Value
Finding
Value

Evaluating companies’ Automation

Working Capital Efficiency Accounts payable processing 81% 53% 28%
Interesting results emerged when companies were asked about Inventory management 64% 42% 22%
current practices for evaluating working capital efficiency. While Accounts receivable collections 64% 45% 19%
nearly all indicated the use of specific metrics, fully one-third
Cash flow forecasting 43% 24% 19%
accounts payable days-on-hand while far fewer use error rates
and staffing metrics.
Some companies question the overall value of the measures
they use to assess working capital efficiency, which supports
their belief that the approach warrants improvement. In fact,
several widely used measures (including accounts payable days-
on-hand, current ratio and ROA) have far more detractors than
advocates.
Other measures used by a relatively large number of com-
panies include the current ratio (assets-to-liabilities), inventory
days-on-hand and forecasting accuracy. Of particular interest is
that 50 percent use degree of automation as a working capital
measure, which has both cost containment and cash flow opti-
mization implications.
Automation Generates Operational Benefits
and Improves Processing Efficiency
Companies often struggle with paper-based, manual processes
for managing working capital. However, 80 percent of respon-
dents indicate using automation for accounts payable process-
ing. Two-thirds use automation for inventory management and
accounts receivable collections.
Most companies using automation in these areas are finding
value from it—although there is opportunity for improvement,
especially in the area of cash flow forecasting. In addition, many
who have not automated recognize the potential long-term
cost and time savings, but feel they cannot presently afford the
expense.
What Your Company Can Do Right Now
Developing a cash management culture is critical to achieving
your company’s strategic business objectives. Start by:
- Establishing working capital optimization as a daily pursuit
rather than a program that ends at implementation.
- Appointing a steering committee to champion ongoing
efforts and help internal departments work together.
- Investigating technology solutions to automate operations
and increase both transparency and control.
- Linking performance goals and compensation at all levels to
working capital metrics, revenue and profitability.
As your leadership team is making the culture shift, be sure to
apply the right metrics to guide process improvement. Develop-
ing an effective continuous improvement framework will help to
align business planning with strategic goals. It will also help you
identify opportunities to implement sustainable improvements
by adopting “best in class” processes across the organization. And,
it will help you maintain a forward-thinking approach to work-
ing capital management as a measure of operational soundness.
Finally, turn your attention to efficiently using your com-
pany’s readily available resources. Gain information by initiating
peer-to-peer exchanges, calling on suppliers and consultants
for input and studying companies that are adept at efficiently
managing working capital. Combined with the steps above, this
will allow you to capitalize on the opportunity to improve your
company’s ready access to working capital.

What companies say about the value of Working Capital Efficiency measures
... And Finding ... And Not
Doing It
Value Finding Value

Measure
Cash on hand 81% 58% 23%

Accounts receivable days on hand 77% 56% 21%

Forecasting accuracy 69% 38% 31%

Accounts payable days on hand 64% 26% 38%

Current ratio 61% 22% 39%

Return on assets 58% 22% 36%

Inventory days on hand 57% 33% 24%

Degree of automation 49% 16% 33%

Error rates 44% 17% 27%

Amount of staff training/education related to working capital management 31% 9% 22%

Staffing/resource levels assigned to working capital management 29% 10% 19%

For more information about how PNC can help your company improve operational efficiency and optimize
# working capital management, please contact your relationship manager or visit pnc.com/ideas.
This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific
transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in
any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific
situation. Any views expressed herein are subject to change without notice due to market conditions and other factors. ©2010 The PNC Financial Services Group, Inc. All rights reserved.