How to Find Cash in Operations

As debt gets more expensive, here's how to access cash locked up in inventory, receivables, and payables.

It’s no secret that many companies, both in the United States and abroad, have dramatically increased the amount of cash they keep on hand, in large part by increasing their long-term debt load. REL Consulting, which is a division of The Hackett Group, and CFO Magazine recently analyzed the financial statements of the 1,000 largest U.S.-headquartered public companies that are not in the financial sector. They found that among these companies, long-term debt has more than doubled over the past 12 years and has grown nearly 20 percent in the past three years.

This trend is understandable, since many businesses struggled with liquidity during the recent downturn—but it’s not sustainable. With interest rates rising and corporate credit ratings falling, borrowing is becoming much more expensive, and for some companies funding sources may completely dry up. Finance professionals across the United States are re-evaluating their cash and borrowing needs.

Moving Forward, Eyeing the Past


Achieving the right balance can be very difficult, according to Prathima Iddamsetty, senior manager with REL. “What we see in our practical experience with customers is that inventory is one of the hardest areas of working capital management to improve because it’s very industry-specific,” she says. “What works in one industry doesn’t necessarily work in other industries. Figuring out the balance between what works best for operations and what sales wants, in addition to all the forecast inaccuracies based on demand volatility, is always a challenge.”

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