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Dash for Cash - No Long-Term Benefit Gaming metrics to beat analysts’ short-term expectations may plump returns in time for the new year – but only genuine improvements are rewarded in the long run. Here are ten steps to help companies shrink working capital 15-30% by year-end - and keep it off.

Dash for Cash – No Long-Term Benefit

Ten steps to help companies shrink working capital 15-30% by year-end – and keep it off

by Justin Harrison, Director, REL Consultancy, a division of The Hackett Group

Public companies often make a ‘dash for cash’ at the end of the fiscal year to produce a cash flow statement that’s suitable for framing when financial statistics are due to be released. They spend an enormous amount of effort trying to meet estimates of yearly performance and there is more at stake than mere window dressing. Beat expectations and investors reward you. Fall short and so will your stock price. The pressure to perform is so intense that many companies now game the system on an annual basis to make their numbers – especially working capital numbers – look good at year-end.

Common gaming tactics and why they don’t work

Game 1: Plump sales
To hit their revenue numbers, many companies resort to a variety of tactics to give their sales a temporary boost, offering customers discounts to encourage them to purchase more or bulk-buy. While this raises revenue it also hurts gross margins and profitability. The sales force often implements this tactic without completely understanding the company’s capability to produce the product, possibly creating a strain on manufacturing or supply chains as it tries to meet this artificial demand.

This also trains buyers to behave opportunistically – if discounts become a yearly habit, customers learn to postpone their buying until the offer comes round again.

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