Working Capital of S&P 1500 Companies at Highest Levels in 10 Years

Published 

The working capital of the S&P 1500 companies rose to their highest levels in a decade in 2020 as the Covid-19 crisis impacted supply chains and stalled consumer demand worldwide, leaving the firms with excess inventory levels. This was among the key findings in J.P. Morgan’s 2021 edition of the Working Capital Index report, published this month.

The annual report, which analyses the working capital metrics of companies listed on the S&P Composite 1500 index, also found cash levels in 2020 rising to a seven-year high as firms turned to fund-raising initiatives and cash preservation measures to shore up their liquidity buffers during the pandemic. Meanwhile, an estimated $507 billion of liquidity remained trapped within the supply chains of the S&P 1500 companies as at the end of last year, up from $497 billion in 2019.

“Covid-19 has further exposed the vulnerabilities of global supply chains, which were already under pressure in recent years as a result of the geopolitical trade tensions. A key focus for finance practitioners will be to continue building supply chain resiliency in their operations, in order to withstand future shocks as well as to mitigate the negative impact on working capital,” said Gourang Shah, global head of Treasury and Working Capital Optimisation for Wholesale Payments at J.P. Morgan, who is an author of the report.

The report found nearly two-thirds (64 percent) of the S&P 1500 companies experiencing deterioration in their working capital efficiencies in 2020, with the aerospace and defense, and the airlines sectors among the hardest hit as the demand for travel collapsed amid widespread lockdowns and movement restrictions. The semiconductor industry meanwhile showed the most improvement in working capital efficiencies on the back of strong sales of consumer electronics goods and increased demand for cloud services as the global working population pivoted to remote work arrangements.

Through examining the recovery trends of the S&P 1500 companies in previous economic downturns of similar magnitude, the report also found companies during the recovery phase of the 2008 global financial crisis (GFC) that registered strong revenue growth due to the ability to invest early, demonstrated robust working capital efficiencies.

“We observed strong correlation between companies that were able to manage working capital effectively during the GFC recovery phase in order access internal funding and the pace of rebound in their revenue growth. This reiterates the importance for corporates to actively deploy working capital tools as a means to recover quickly from the Covid-19 crisis,” Shah said.

According to the report, the top four industries expected to show the most growth as they rebound from the pandemic include the semiconductor, e-commerce, pharmaceutical and technology hardware sectors.

The Working Capital Index was launched in 2019 to provide insights into the working capital performance of some the world’s largest and most influential companies and to serve as an industry standard for companies to benchmark their working capital performances against peers. 

Most recent episodes

Advantage Treasury

Eleanor Hill is joined in the virtual TreasuryCast studio by Nicolas Cailly and Philippe Penichou (Societe Generale) to look at treasury trend predictions for the remainder of 2022, with a particular focus on virtual accounts. In this deep dive into current and future treasury priorities, our guests consider...

24:22

40th Annual New York Cash Exchange: What Can Treasurers Expect?

Ahead of the 40th annual New York Cash Exchange, two of TMANY’s distinguished board members, David Miller and Timothy T. Hesler, CTP, provide TMI CEO, Robin Page, with a quickfire rundown of what attendees can expect from this year’s conference. Our guests share their aspirations for the event,...

09:58

Expectation-Beating Inflation Prints Ratchet Up Pressure on Monetary Policy

Welcome to the third edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 9th May...

04:48

Making the Sustainable Transition: A Roadmap to ESG in Treasury

Over the last 18 months, Societe Generale has experienced a steady increase in requests from their corporate clients to integrate ESG features in treasury management.  Louis-David Rouyer, Philippe Pougeard, and Emmanuelle Petelle (Societe Generale) provide TMI’s Eleanor Hill with a whistlestop run...

22:24

Lift Off for Fed Rate Rises

Welcome to the latest edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 5th of...

04:58

Treasury in 2022 and Beyond

Industry experts Bob Stark (Kyriba) and Sebastian di Paola (PwC) join TMI’s Editor, Eleanor Hill, to explore the very latest treasury trends – and to discuss how smart treasurers can get ahead of the game by ...

43:21

How BearingPoint Harnessed Data-Driven Forecasting with CashAnalytics and SAP

Listen back to our recent forecasting masterclass, where Group Treasurer Eveline Stam, and Conor Deegan (CashAnalytics) provided TMI’s Eleanor Hill with a comprehensive overview of how consultancy firm BearingPoint achieved company-wide cash forecasting nirvana by combining specialist solutions from...

37:14

The 3 T’s of The Future: Tech, Treasury, and Transformation

Over the past two years, an increasingly dynamic environment has not only accelerated technology development – from quantum computing to blockchain technology, and even the metaverse – but also technology adoption, bridging colleagues and breaking down silos in a remote work world. In this podcast,...

44:02

Monetary Policy Continues to Drive Markets as Ukraine Invasion Weighs on March Meetings

Welcome to the second edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 3rd of...

05:25

Tax Spotlight: How the OECD’s Two-Pillar Solution Impacts Treasury

Aaron Lee and Joseph Lee (DBS Bank) join TMI’s Eleanor Hill to discuss how the OECD’s Two-Pillar Solution aims to address the tax challenges arising from the digitalisation of the economy. Ahead of the 2023 implementation date multinational corporates will have much to consider around these reforms....

24:00