Cash & Liquidity Management
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Working Capital as a Lever of Profitability

PwC European Working Capital Management Study 2009

by Martin Böhme, Manager, Finance & Treasury Solutions Group, PricewaterhouseCoopers, Belgium, and Didier Vandenhaute, PricewaterhouseCoopers, Belgium

Despite a great deal of research being done on classical working capital indicators (DSO, DPO and DIO), it seems that little attention has been paid to the relationship between working capital levels and profitability.

PricewaterhouseCoopers has conducted a European study analysing trends in working capital management but also its link with profitability (as measured by the return on net assets or RONA).

The research sample

The study covered 969 listed companies from 11 European countries (see Figure 1) for the 2004-2008 period. Companies have been assigned to countries based on the location of their headquarters.