J.P. Morgan Working Capital Index 2021 Helping Companies Benchmark for Success Table of Contents

J.P. Morgan Working Capital Index 2021 Helping companies benchmark for success Table of contents

1. Introduction 2 Calculation Methodology 2

2. Key Findings 4

3. Post-pandemic Recovery Outlook Across Industries 11 Oil and Gas upstream 13 Apparel and Accessories 14 Auto and Auto parts 15 Semiconductor 16

4. Managing Liquidity Risks 17

5. Conclusion 19

6. Summary of Findings 20

7. Authors 22 1 Introduction

This edition of the Working Capital Index report captures the working capital trends of 2020 — a year marked by the onset of the pandemic and the recovery outlook across industries that today continues to unfold and where its full impact on the global economy and business landscape will likely not be known until years from now. Despite vaccination programs being rolled out globally, many countries are still experiencing new waves of infections, making it difficult to predict how much longer the pandemic will last, or when a full recovery will happen and how that might play out. For corporates, the key to growth during this period is the strategic shift from capital preservation to capital deployment, where efficient working capital management will play a critical role in sourcing for capital to fund business and expansion opportunities. Through insights derived from the analysis of working capital metrics, this report aims to help finance practitioners track the working capital trends and guide their initiatives to enhance their working capital management as they prepare for recovery in 2021. In this issue, we will: ➔ Examine the performance of Working Capital Index, Cash Index and Cash Conversion Cycles (CCC) of the S&P 1500 companies in the past year ➔ Provide industry insights and assess the impact of pandemic on working capital ➔ Analyze the road to recovery and risks by industry

Calculation Methodology

There are three sets of data points analyzed in this report: I. The Working Capital Index tracks the average net working capital/sales values across the S&P 1500 companies and is calculated as follows:

II. The Cash Index tracks the average cash/sales values across the S&P 1500 companies and is calculated as follows:

WORKING CAPITAL INDEX 2021 2 We have established the base levels of 100 for both the Working Capital Index and the Cash Index, using 2011 as the base year. III. The Cash Conversion Cycle (CCC) is the number of days it takes to convert inventory purchases into cash flows from sales. The CCC is a metric that helps quantify the working capital efficiency of a company and is derived from three different components: ➔ Days Sales Outstanding (DSO) or the number of days taken to collect cash from customers ➔ Days Inventory Outstanding (DIO) or the number of days the company holds its inventory before selling it ➔ Days Payable Outstanding (DPO) or the number of days from the time a company procures raw materials to payment to suppliers

= $ + –

CCC DSO DIO DPO

Companies can improve their working capital by effectively managing the individual components of their CCC via reducing inventory levels (decreasing DIO), extending payment terms with suppliers (increasing DPO) and speeding up collections from customers (shortening DSO). As a general rule, the lower the CCC, the better the working capital efficiency.

Note: To avoid the distortion of data, financial services and real estate firms in the S&P 1500 were excluded from the calculations due to their distinct business models and unique working capital metrics in comparison to other industries. Companies with high volatility in working capital and those with incomplete data were also removed, bringing the total number of companies used for this analysis to over 900. All numbered data have been gathered from Capital IQ for the purpose of calculations. The trends extracted from our analysis were validated against insights from J.P. Morgan’s research team.

WORKING CAPITAL INDEX 2021 3 2 Key Findings

I. Working Capital Index rose to highest level in a decade

120

116.3

114.2 115

110.8 109.7 109.5 110 108.5 107.1 106.6 105.9 104.7 105 102.6

100.0 100 U.S. Fed starts U.S.-China trade Steep fall in oil COVID-19 pandemic prices raising interest rates dispute

90 2011 2012 2013 2014 2015 2016 2017 2018 1H2019 2019 1H2020 2020

Source: Capital IQ

In 2020, the Working Capital Index rose to its highest level in 10 years, as the widespread lockdowns that impacted supply chains as a result of the pandemic crisis, combined with the stalling of demand for products and services across multiple industries as the global economy went into recession, left corporates with high levels of excess inventories. The situation was exacerbated as companies stocked up on inventories to mitigate further supply chain disruptions. As business sentiment recovered towards the end of the year, sales in some industries improved and receivables levels subsequently rose, further contributing to the increase in working capital levels. With the global economy expected to recover this year, working capital levels in 2021 will likely trend lower as consumer confidence rebounds and demand for goods and services returns.

Takeaway: Treasurers should continue to focus on enhancing their working capital management. Significant amounts of liquidity currently trapped in working capital if released in a timely manner can provide the much-needed capital to fund future growth.

WORKING CAPITAL INDEX 2021 4 II. Cash index rose significantly on fortified liquidity buffers

110

US Fed starts raising interest 105.1 105.0 rates 105 101.8 101.0 100.0 99.9 100 98.8 U.S. tax reforms 98.1

98.2 Brexit Referendum 94.8 95 Eurozone Crisis 93.5 Fears of a hard 91.6 COVID-19 90 landing in China pandemic

85 2011 2012 2013 2014 2015 2016 2017 2018 1H2019 2019 1H2020 2020

Source: Capital IQ

The Cash Index also rose in 2020 to levels not seen in seven years as corporates turned to fund- raising initiatives and cash preservation measures to shore up their liquidity buffers amid the pandemic. Cash preservation initiatives employed included putting a pause on share repurchases, cutting back capital expenditure and reducing external spending. The record low interest rate environment coupled with the massive stimulus from the U.S. government further made it easier for companies to boost their cash holdings, With a recovery taking shape in 2021, we expect corporates to start deploying the excess cash through capital investments, share buybacks, dividends payout, debt repayments or M&As, reducing their cash holdings.

Takeaway: As corporates prepare for a recovery in their businesses, treasurers should revisit their cash management strategies and shift focus from cash preservation to cash deployment to support the business growth.

WORKING CAPITAL INDEX 2021 5 BigIII. companies Widening vs small gap companies in cash levels between Cashsmall levels and big companies

Cash-to-Sales ratio for big companies and small companies

Large firms Small firms 23.5%

20.5% 20.2% 19.6% 18.9% 18.8%

18.8% 18.2% 18.0% 17.8%

15.9%

14.8%

2015 2016 2017 2018 2019 2020

Source: Capital IQ

Source: Capital IQ Note: Historical rations restated according to 2020 S&P1500 constituents

Note: Historical ratios restated according to latest S&P 1500 constituents as of 2020. Values for big companies are derived by calculating the averages across the top 50 percent of companies (by revenue) of every industry. For small companies, the value is calculated using the averages of the bottom 50 percent of companies (by revenue) across each industry.

The pandemic crisis posed unique challenges in the ability to procure funding, resulting in a widening gap in cash levels between small and big companies. Small companies generally maintain higher cash levels than their larger counterparts, as bigger companies tend to have more efficient cash management practices and better access to external capital. During the pandemic, the propensity for lenders to provide capital to small companies relative to big companies reduced, prompting smaller companies to beef up their cash buffers. For this reason, 2020 saw an increase of 4.7 percent in cash levels for small companies vis-a-vis a 4.0 percent rise for their bigger counterparts.

Takeaway: Corporates should assess and create cash management strategies best suited for them, keeping the balance between managing the risks arising from the pandemic crisis and supporting business growth as recovery takes shape.

WORKING CAPITAL INDEX 2021 6 IV. Cash Conversion Cycle lengthened the most in nine years

Average working capital performance parameters across the S&P 1500 companies 2012–2020 (in average number of days)

55.8 53.0 50.6 51.0 51.0 51.5 $ 48.4 49.4 48.9

DSODSO 2012 2013 2014 2015 2016 2017 2018 2019 2020 51.1 48.3 48.7 48.4 46.9 47.1 47.4 45.8 46.4

DPODPO 2012 2013 2014 2015 2016 2017 2018 2019 2020

72.8 66.7 65.1 64.0 63.5 63.2 61.3 62.5 62.2

DIO DIO 2012 2013 2014 2015 2016 2017 2018 2019 2020

77.5 64.4 65.2 64.8 66.4 68.4 66.8 65.5 71.2

CCCCCC 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Capital IQ

The Cash Conversion Cycle (CCC) of the S&P 1500 companies lengthened by 6.3 days in 2020, representing the biggest increase in nine years, largely due to a rise in inventory levels. Weakened demand and supply chain disruptions resulted in the inventory buildup, prompting the days inventory outstanding (DIO) to reach a new high where companies were carrying inventories for 6.1 more days on average. The days payable outstanding (DPO) and days sales outstanding (DSO) also showed sharp increases last year as some companies extended payment terms with their suppliers, customers and leveraged solutions like supply chain finance to manage working capital challenges.

Takeaway: The pandemic exposed the vulnerabilities of global supply chains, where companies are now focused on reviewing their end-to-end supply chains. By understanding the inherent risks, they need to develop sustainable action plans to build resiliency in their supply chains that can withstand future shocks and mitigate any negative impact on working capital. In addition, the increased interest from investors and corporates on the importance of environmental, social and governance (ESG) will require treasury and finance teams to focus on digitization and sustainable supply chain solutions.

WORKING CAPITAL INDEX 2021 7 V. Majority of industries experienced deterioration of CCC

Changes in Cash Conversion Cycle by sector (days) 2019-2020 Changes in cash conversion cycle by sector (days) 2019 –2020

Improvement Deterioration

39.9

19.8 16.9

11.4 8.6 6.9 8.1 7.5 6.4 5.1 3.5 3.2 2.6 0.9 0.1

(0.2) (3.2) (6.6) (10.8) Change in Inventory 21.4 18.0 4.9 8.7 7.9 28.4 5.7 9.7 3.0 7.9 13.2 1.9 4.8 4.4 4.8 2.7 0.3 3.8 (11.3) Media Auto & Utilities Airlines Staples Defense Logistics Software Materials Industrial upstream Oil Gas & Oil Gas & Hardware Auto parts Machinery Consumer Chemicals Healthcare Apparels & Technology Technology Accessories downstream Aerospace & Apparel Retail Semiconductor Pharmaceuticals

Source: Capital IQ Source: Capital IQ

In terms of the CCC performance across sectors, 15 of the 19 industries saw deterioration, or longer CCCs, due to accumulated inventories. Among the industries, the CCC of the oil & gas upstream lengthened the most as inventory piled up as a result of reduced demand for oil. The CCC of the aerospace & defense sector also increased significantly amid cancellations of aircraft orders and a drop in demand for aviation parts. On the other hand, the semiconductor industry experienced the biggest improvement in their CCC due to leaner inventories as a result of strong demand for data storage firms and personal computer manufacturers with the majority of the global workforce pivoting to remote work arrangements.

Takeaway: The pandemic caused significant challenges in working capital management, where some treasurers resorted to tactical short-term measures like delaying their payments to suppliers. For the longer term, treasurers should reassess the levers driving their CCC and devise a more sustainable strategy to manage working capital.

WORKING CAPITAL INDEX 2021 8 VI. More than $500 billion estimated in potential working capital

There remains significant amount of liquidity tied up in supply chains across the S&P 1500 companies observed in the DSO, DIO and DPO metrics, as well as the cash levels within industries (see chart below). Snapshot of the average working capital performances between the top and bottom performers across 19 industries in 2020 (in number of days)

Source: Capital IQ

Snapshot of the average cash levels between top and bottom performers across 19 industries in 2020 (in percentage of revenue)

Source: Capital IQ

WORKING CAPITAL INDEX 2021 9 Assuming every organization improved its working capital and moved into the next performance quartile1 in their respective industries across the DSO, the DPO and the DIO metrics, an estimated $507 billion in working capital could have been released as of year- end 2020, up from $497 billion in 2019.

1 For every working capital parameter we have split the companies within each industry into four performance quartiles (with the first quartile representing the performance of the top 25 percent companies within the industry and the fourth quartile corresponding to the bottom 25 percent). The free cash flow release calculation assumes that a company moves from its existing performance quartile to the next best performance quartile and quartile one companies remain at their current levels

Takeaway: The increase in trapped working capital implies a widening gap between the leaders and laggards in working capital management. Companies with less efficient working capital management should look at industry best practices and measure their performance on a continuous basis to identify and release some of this trapped capital as they plan for recovery.

WORKING CAPITAL INDEX 2021 10 3 Post-pandemic Recovery Outlook Across Industries

As a result of the pandemic crisis, the global economy in 2020 suffered its worst downturn since World War II, with widespread impact to the business landscape worldwide. However, the extent of the impact varied significantly across industries with sectors like technology and healthcare flourishing and airlines and hospitality severely challenged. Likewise, the speed of recovery across the industries in 2021 is also expected to be uneven, with growth in some sectors rebounding quickly while others likely to take years before returning to pre-pandemic levels. To quantify the recovery pace and the inherent risk (measured by debt levels) across industries, we compared the percentage change in revenues of S&P 1500 companies in 2019 (pre-pandemic) versus 2021 estimates1, against the extent of indebtedness (or net debt to total capital levels) in 2020. The chart below categorizes findings into four zones: ➔ Zone 1: Quick recovery, low risk ➔ Zone 2: Quick recovery, medium risk ➔ Zone 3: Slow recovery, medium to high risk ➔ Zone 4: Slow recovery, very high risk

COVID-19 2021 Outlook

Magnitude of risk Low risk High risk 45% Zone 1 Zone 2 Semiconductor 35%

e-commerce

25% Pharma Quick Healthcare Auto & Auto parts Technology Software Media Recovery Speed 15% Telecom Aerospace & Defense Consumer Staples Technology Hardware Logistics 5% Chemicals Utilities Apparels & Accessories Materials Industrial Machinery (5%) Construction & Engineering O&G downstream Apparel Retail

Entertainment Slow (15%) O&G upstream % change in Revenue 2019 vs 2021E (25%)

(35%)

Zone 3 Zone 4 Airlines (45%) (20%) (10%) 0% 10% 20% 30% 40% 50% 60% Net Debt/Total Capital 2020

Source: Capital IQ 12021 Revenue estimates as of March 25, 2021

WORKING CAPITAL INDEX 2021 11 Industries that lie within Zone 1, such as e-commerce, semiconductor and technology software, were either positively or minimally impacted by the pandemic. With low debt levels, these industries are expected to experience revenue growth this year and will have little need to preserve excess cash. They are likely to initiate aggressive cash deployment towards expansionary measures like capital expenditure and M&A to drive growth in the next few years. Sectors in Zone 2 like media, auto & auto parts, and consumer staples will also likely see business rebound this year but they have stretched balance sheet positions due to high net debt levels. Companies in this zone should be cautious with their growth plans, and focus on enhancing working capital and liquidity efficiencies to fund expansion from internal sources without impacting their leverage positions. Industries within Zone 3 suffered a steep fall in revenues, but their relatively strong balance sheets provide them room to take on further debt. As these industries could experience slower recovery this year, they may have to play a waiting game and continue to focus on building their liquidity reserves to fund growth when the opportunities arise. Sectors with Zone 4 – including airlines, oil & gas, and entertainment — were the hardest hit and recovery will take some time. With high leverage levels and having suffered adverse impacts to cash flows and liquidity, these industries will find themselves on the defensive with no room to stretch their balance sheets further. Cash deployment will be subdued and companies in this zone should maintain focus on preserving cash, enhancing liquidity management and generating working capital efficiencies.

Key industry insights

To illustrate the extent of pandemic impact on different industries, we examined four sectors representing the different zones: ➔ Oil & Gas upstream ➔ Auto & Auto parts ➔ Apparel & Accessories ➔ Semiconductor

The analysis also breaks down the working capital parameters into four performance quartiles (with the first quartile representing the performance of the top 25 percent companies within the industry and the fourth quartile corresponding to the bottom 25 percent) to enable finance practitioners to identify industry averages and benchmark their organizations’ working capital performances against peers.

WORKING CAPITAL INDEX 2021 12 I. Oil and Gas upstream Recovery speed

Recovery speed Days Sales Outstanding DaysComparison Payable Outstanding of working capitalDays parameters Inventory within Outstanding the oil and gas upstreamCash Conversion sector 2011–2020 Cycle (in average number of days)

83.7 Days Sales Outstanding Days Payable Outstanding Days63.6 Inventory Outstanding Cash Conversion60.5 Cycle 82.8 110.4 53.6 55.5 51.6 104.1 103.9 45.7 82.3 42.2 70.7 83.7 63.6 60.5 82.8 110.4 50.7 50.8 50.5 55.5 68.1 103.9 46.3 53.6 51.6 65.1 99.0 88.5 88.8 104.1 103.9 45.7 28.5 71.3 70.6 82.3 21.1 42.2 70.7 37.2 17.6 20.6 67.0 67.2 68.1 103.9 50.7 50.8 50.5 65.1 99.0 88.5 88.8 46.3 28.5 71.3 70.6 87.4 86.8 22.921.1 86.2 37.2 17.6 20.6 67.0 67.2 86.2 87.4 86.8 14.6 13.7 14.9 22.9 14.6 13.7 14.9 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

Source: Capital IQ Days Sales Outstanding Days PayableDays Sales Outstanding Outstanding DaysDays Payable Inventory Outstanding OutstandingDays Inventory OutstandingCash conversionCash cycle conversion cycle

2020 was83 a year103 of disruption for 83the oil and112 gas upstream sector52 with78 the CCC deteriorating66 112 83 103 83 112 52 78 112 by 40 days. The industry was already experiencing headwinds prior to the66 pandemic as Recovery speed a result of the global trade tensions and oil price wars between global oil producers. The 104 onset63 of pandemic caused123 global54 demand to slump,141 driving26 down oil prices to levels20 not seen 158

63 123 54 since the aftermath of141 September26 11 terrorist attacks in 2001.104 The oversupply20 led to excess 158 84 87 64 61 days Days Sales Outstanding Days Payable Outstandingdays Days Inventory daysOutstanding Cash Conversiondays Cycle oil inventory43 levels,253 resulting in a25 rise of approximately340 21 days0 in DIO on283 average for the-206 481 Quartile 1 (340-99) Quartile 2 (99-67) Quartile 1 (0-27) Quartile 2 (27-46) Quartile 1 (-206-(-9)) Quartile 2 ((-9)-67) 84 upstreamQuartile 1 (43-64) sector.Quartile 2 (64-73) Quartile 3 (7387-97) Quartile 4 (97-253) Quartile 3 (67-40) Quartile64 4 (40-25) Quartile 3 (46-77) Quartile 4 (77-283) 61 Quartile 3 (67-112) Quartile 4 (112-481) days 83.7 63.6 60.5 82.8days 110.4 days days 55.5 43 253 The25 companies340 in the upstream sector0 faced severe283 liquidity53.6 challenges particularly-206 related481 51.6 104.1 103.9 45.7 82.3 42.2 Quartile 1 (43-64) Quartile 2 (64-73) Quartileto 170.7 (340delayed-99) paymentsQuartile 2 (99 and-67) paymentQuartile defaults 1 (0-27) by theirQuartile customers, 2 (27-46) leadingQuartile to 1 an(-206 average-(-9)) Quartile 2 ((-9)-67) 68.1 103.9 50.7 50.8 50.5 65.1 99.0 88.5 88.8 46.3 28.5 Quartile 3 (73-97) Quartile 4 (97-253) Quartile71.3 3 (67-40) 70.6Quartile 4 (40-25) Quartile 3 (46-77) Quartile 4 (77-283) Quartile 3 (67-112)21.1 Quartile 4 (112-481) increase of 17 days in DSO. 37.2 17.6 20.6 67.0 67.2 86.2 87.4 86.8 22.9 Working capital parameters within the oil and gas upstream industry 2020 (in14.6 average 13.7 14.9

’11 ’12number’13 ’14 ’15 of’16 days)’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash conversion cycle

83 103 83 112 52 78 66 112

63 123 54 141 26 104 20 158

84 87 64 61 days days days days 43 253 25 340 0 283 -206 481

Quartile 1 (43-64) Quartile 2 (64-73) Quartile 1 (340-99) Quartile 2 (99-67) Quartile 1 (0-27) Quartile 2 (27-46) Quartile 1 (-206-(-9)) Quartile 2 ((-9)-67) Quartile 3 (73-97) Quartile 4 (97-253) Quartile 3 (67-40) Quartile 4 (40-25) Quartile 3 (46-77) Quartile 4 (77-283) Quartile 3 (67-112) Quartile 4 (112-481)

Source: Capital IQ

In 2020, upstream companies took an average of 87 days to pay its suppliers while cash from sales was realized in 84 days. On average, companies maintained 64 days’ worth of inventory.

WORKING CAPITAL INDEX 2021 13 II. Apparel and Accessories Recovery speed

Recovery speed Days Sales Outstanding DaysComparison Payable Outstanding of working capitalDays parameters Inventory within Outstanding the apparel and accessoriesCash Conversion sector Cycle 2011–2020 (in average number of days)

122.5 44.4 Days Sales Outstanding86.7 Days Payable Outstanding Days Inventory Outstanding Cash Conversion Cycle 164.8 116.0 114.4 112.8 113.5 37.1 112.3 59.3 122.5 35.7 35.4 35.3 44.4 86.7 109.4 54.5 55.7 164.8 116.0 51.7 131.5 134.2 130.5 112.5 114.4 35.8 37.2 49.9 62.9 112.3 112.8 113.5 35.8 35.2 34.3 37.1 123.7 35.7 35.4 35.3 59.3 136.4 107.6 109.4 55.9 55.7 54.5 131.5 134.2 112.5 54.5 35.8 37.2 49.9 51.7 130.6 131.762.9 130.8 130.5 102.9 35.8 35.2 34.3 123.7 47.3 121.8 55.9 136.4 107.6 54.5 130.6 131.7 130.8 102.9 47.3 121.8 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

35 53 87 117 148 193 97 123 35 53 The87 apparel and117 accessories industry experienced148 one193 of its most challenging97 years in 123 recent memory as the widespread lockdowns due to pandemic kept stores shut and Recovery speed

disrupted18 supply chains.70 57 146 104 238 70 150

18 70 57 While consumers took146 to e-commerce104 platforms for shopping,238 helping70 to reduce inventory 150 44 87 165 123 Dayslevels, Sales the Outstandingdays industry still sawDays an Payable average Outstandingdays increase of 28Days days Inventory in DIO daysOutstanding from 2019 levels.Cash Delays Conversion days Cycle 0 87 28 346 59 282 -109 309 44 inQuartile payments 1 (0-27) byQuartile customers 2 (27-42) alsoQuartile led 1 (346 to-98) an increaseQuartile 2 (98-72) in theQuartile DSO 1 (59by-131) 7 daysQuartile on 2 (131average.-166) Quartile 1 ((-109)-92) Quartile 2 (92-115) Quartile 3 (4287-62) Quartile 4 (62-87) Quartile 3 (72-57) Quartile16 54 (57-28) Quartile 3 (166-207) Quartile 4 (207-282) 123Quartile 3 (115-147) Quartile 4 (147-309) days 122.5 days 44.4 days86.7 days 164.8 0 87 However,28 a large346 part of the CCC increase59 was offset282 by increase in DPO -that109 rose116.0 by 309 114.4 112.8 113.5 37.1 112.3 Quartile 1 (0-27) Quartile 2 (27-42) Quartile35.7 27 1 (346days-98)35.4 on averageQuartile35.3 2 as(98 -companies72) Quartile delayed 1 (59-131) their59.3 vendorQuartile 2 payments (131-166) orQuartile used 1supply ((-109)-92) chain Quartile 2 109.4(92- 115) 55.7 54.5 131.5 134.2 112.5 Quartile 3 (42-62) Quartile 4 (62-87) Quartilefinancing 3 (7235.8-57) solutionsQuartile37.2 4 (57to -28)49.9manage51.7 Quartiletheir liquidity3 (166-62.9207) needs.Quartile 4 (207-282) Quartile130.5 3 (115-147) Quartile 4 (147-309) 35.8 35.2 34.3 123.7 55.9 136.4 107.6 54.5 130.6 131.7 130.8 102.9 Working capital parameters47.3 within the apparel and121.8 accessories industry 2020 (in average

Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash conversion cycle

35 53 87 117 148 193 97 123

18 70 57 146 104 238 70 150

44 87 165 123 days days days days 0 87 28 346 59 282 -109 309

Quartile 1 (0-27) Quartile 2 (27-42) Quartile 1 (346-98) Quartile 2 (98-72) Quartile 1 (59-131) Quartile 2 (131-166) Quartile 1 ((-109)-92) Quartile 2 (92-115) Quartile 3 (42-62) Quartile 4 (62-87) Quartile 3 (72-57) Quartile 4 (57-28) Quartile 3 (166-207) Quartile 4 (207-282) Quartile 3 (115-147) Quartile 4 (147-309)

Source: Capital IQ

In 2020, companies within the apparel and accessories industry took an average of 44 days for to turn sales into cash proceeds. The sector held 165 days’ worth of inventory, and payments to suppliers were generally made within an average of 87 days.

WORKING CAPITAL INDEX 2021 14 III. Auto and Auto parts Recovery speed

Recovery speed Days Sales Outstanding DaysComparison Payable Outstanding of working capitalDays parameters Inventory within Outstanding the auto and auto partsCash sectorConversion 2011–2020 Cycle (in average number of days)

39.7 Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash Conversion Cycle 58.7 85.2 33.6 66.1 32.5 29.8 49.2 50.1 51.7 72.9 73.6 28.4 46.7 68.2 68.0 56.9 32.9 35.5 39.7 55.1 32.0 58.7 77.2 53.1 53.685.2 29.5 50.2 50.333.6 61.0 66.1 37.4 32.5 72.3 72.2 29.8 70.049.2 50.1 51.7 72.9 73.6 25.1 28.4 46.7 68.0 55.0 43.4 44.2 35.5 68.2 52.8 55.0 56.9 32.0 32.9 62.2 77.2 53.1 53.6 55.1 29.5 50.2 50.3 49.9 61.0 37.4 70.0 72.3 72.2 25.1 55.0 55.0 43.4 44.2 62.2 52.8 49.9

’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

42 61 55 80 55 78 38 64 42 61 The55 auto and auto80 parts industry was one55 of the hardest78 hit sectors at the 3onset8 of pandemic64 as widespread factory closures, slumping car sales and massive layoffs led to supply and Recovery speed

demand22 shocks for both80 auto30 suppliers and automakers.105 33 Inventory levels rose100 significantly12 in 90 the first half of 2020 as demand collapsed. 22 80 30 105 33 100 12 90 40 59 85 66 A rebounddays in demand in the second halfdays of 2020 helped to reducedays inventories from the highsdays 3 142 5 249 11 296 -14 239 Daysof first Sales halfOutstanding 2020. On average,Days Payable the DIO Outstanding rose by 8 daysDays compared Inventory Outstandingto 2019 levels. Cash Conversion Cycle 40 Quartile 1 (3-16) Quartile 2 (16-29) Quartile 1 (249-70) Quartile 2 (70-53) Quartile 1 (11-45) Quartile 2 (45-66) Quartile 1 ((-14)-33) Quartile 2 (33-53) 59 Quartile 3 (53-21) Quartile85 4 (21-5) Quartile 3 (66-84) Quartile 4 (84-296) 66 Quartile 3 (53-81) Quartile 4 (81-239) days Quartile 3 (29-62) Quartile 4 (62-142) The DPOdays rose by an average of 7 days as companiesdays negotiated for temporary extensionsdays of 3 142 5 249 39.7 11 296 -14 239 58.7 85.2 33.6 66.1 payments32.5 terms with suppliers and service providers in response to the pandemic. The 4 days Quartile 1 (3-16) Quartile 2 (16-29) Quartile 1 (24929.8-70) Quartile 2 (70-53) Quartile49.2 1 (1150.1-45)51.7 Quartile 2 (45-66) 72.9 Quartile73.6 1 ((-14)-33) Quartile 2 (33-53) 28.4 46.7 68.0 35.5 68.2 56.9 Quartile 3 (29-62) Quartile 4 (62-142) Quartileon 3 (53 average-21)32.0 32.9riseQuartile in the4 (21 -DSO5) wasQuartile reflective 3 (66-84) of the Quartileincrease 4 (84 in-296) receivablesQuartile in77.2 3 the(53-81) fourth53.1 53.6 quarterQuartile 55.1 4 (81-239) 29.5 50.2 50.3 61.0 37.4 70.0 72.3 72.2 25.1 55.0 55.0 when demand for auto parts43.4 rebounded.44.2 62.2 52.8 49.9 Working capital parameters within the auto and auto parts industry 2020 (in average number ’11 ’12of’13 days)’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash conversion cycle

42 61 55 80 55 78 38 64

22 80 30 105 33 100 12 90

40 59 85 66 days days days days 3 142 5 249 11 296 -14 239

Quartile 1 (3-16) Quartile 2 (16-29) Quartile 1 (249-70) Quartile 2 (70-53) Quartile 1 (11-45) Quartile 2 (45-66) Quartile 1 ((-14)-33) Quartile 2 (33-53) Quartile 3 (29-62) Quartile 4 (62-142) Quartile 3 (53-21) Quartile 4 (21-5) Quartile 3 (66-84) Quartile 4 (84-296) Quartile 3 (53-81) Quartile 4 (81-239) Source: Capital IQ

As of 2020, auto and auto parts companies took an average of 59 days to pay off supplier invoices. They maintained an average of 85 days’ worth of inventory and took 40 days to convert sales into cash proceeds.

WORKING CAPITAL INDEX 2021 15 IV. Semiconductor Recovery speed

Recovery speed Days Sales Outstanding DaysComparison Payable Outstanding of working capitalDays parameters Inventory within Outstanding the semiconductorCash sector Conversion 2011–2020 Cycle (in average number of days)

48.7 60.2 45.9 120.2 Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash Conversion131.6 Cycle 52.8 43.0 42.7 42.7 49.8 49.2 107.3 49.1 57.3 45.8 45.4 101.4 43.8 43.7 99.4 99.848.7 50.9 53.0 108.9 106.5 106.5 120.9 50.0 42.7 60.2 45.9 120.2 106.0 49.8 116.7 131.6 103.3 52.8 43.0 42.7 42.7 110.1 49.8 49.2 98.6 107.3 49.1 57.3 45.8 96.345.4 101.4 105.1 53.0 43.8 43.7 99.4 99.8 102.7 50.9 50.0 91.242.7 98.0 108.9 106.5 106.5 106.0 120.9 49.8 116.7 103.3 110.1 98.6 96.3 105.1 102.7 91.2 98.0 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

53 68 46 55 113 158 105 140 53 68 As46 majority of the55 global working population113 pivoted158 to remote work arrangements105 as 140a result of movement restrictions and lockdowns, the semiconductor industry experienced

a38 surge in demand on83 the back37 of strong sales of64 consumer68 electronics goods203 and 70 175 38 83 37 increased demand for64 cloud services.68 Combined with additional203 factors70 including the 175 57 45 109 Recovery121 speed adoption ofdays 5G technologies, resurgencedays in demand for automobilesdays towards the end days 23 106 28 79 23 273 35 299 57 of the year, and an increase in size of orders by customers to build inventory reserves Quartile 1 (2345-45) Quartile 2 (45-57) Quartile 1 (79-53) Quartile109 2 (53-44) Quartile 1 (23-79) Quartile 2 (79-102) 121Quartile 1 (35-76) Quartile 2 (76-115) days dueQuartile to 3 (57supplydays-70) chainQuartile 4 (70concerns,-106) Quartile the 3 (44semiconductor-36) Quartiledays 4 (36- 28)industryQuartile was 3 (102 at-133) theQuartile brink 4 (133 of-273) exhaustingdaysQuartile 3 (115 -146) Quartile 4 (146-299) 23 106 its28 manufacturing79 capacity by the end 23of 2020. The 273industry’ DIO decreased35 by 299 Quartile 1 (23-45) Quartile 2 (45-57) Quartile 1 (79-53) Quartile 2 (53-44) Quartile 1 (23-79) Quartile 2 (79-102) Quartile 1 (35-76) Quartile 2 (76-115) Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash Conversion Cycle Quartile 3 (57-70) Quartile 4 (70-106) Quartileapproximately 3 (44-36) Quartile 11 days 4 (36 -in28) 2020 asQuartile compared 3 (102-133) to 2019.Quartile 4 (133-273) Quartile 3 (115-146) Quartile 4 (146-299)

High demand for semiconductor-related products48.7 also resulted in lower DSO as the firms 60.2 45.9 120.2 could bargain for faster collections from their customers. The DSO improvement was 131.6 52.8 43.0 42.7 42.7 49.8 49.2 107.3 however largely49.1 offset57.3 by a reduction45.8 in the DPO45.4 as the industry101.4 passed on the benefits 53.0 43.8 43.7 99.4 99.8 50.9 50.0 42.7 108.9 106.5 106.5 106.0 120.9 49.8 116.7 to their suppliers. Overall, the industry’s CCC decreased103.3 by an average of 11 days in110.1 2020. 98.6 96.3 105.1 102.7 Working capital parameters within the semiconductor91.2 industry 2020 (in average98.0 number

’11 ’12of’13 days)’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

Days Sales Outstanding Days Payable Outstanding Days Inventory Outstanding Cash conversion cycle

53 68 46 55 113 158 105 140

38 83 37 64 68 203 70 175

57 45 109 121 days days days days 23 106 28 79 23 273 35 299

Quartile 1 (23-45) Quartile 2 (45-57) Quartile 1 (79-53) Quartile 2 (53-44) Quartile 1 (23-79) Quartile 2 (79-102) Quartile 1 (35-76) Quartile 2 (76-115) Quartile 3 (57-70) Quartile 4 (70-106) Quartile 3 (44-36) Quartile 4 (36-28) Quartile 3 (102-133) Quartile 4 (133-273) Quartile 3 (115-146) Quartile 4 (146-299)

Source: Capital IQ

In 2020, the semiconductor industry took an average of 45 days to pay off suppliers, maintained 109 days of inventory and took 57 days to turn sales into cash proceeds.

WORKING CAPITAL INDEX 2021 16 4 Managing Liquidity Risks

A Lesson from History

As the focus of businesses turns towards recovery, we wanted to examine past economic downturns of similar magnitude to derive lessons we can apply to the current recovery phase. Using data from the S&P 1500 companies during the global financial crisis (GFC) of 2008, we calculated the percentage change in their revenue at the height of the crisis (the 12 months ending December 2008) and post recovery from the crisis (12 months ending June 2011). We also calculated their cash flow from investing (CFI) as a percentage of sales from July 2009 to June 2010 – widely viewed as the initial phase of the recovery from the GFC and a period we are using as a benchmark to compare recovery trends in the current environment. Finally, we cross checked the S&P 1500 companies’ CCCs in 2011 against growth rates during GFC recovery period. We observed a strong correlation between the amount companies invested during the early phase of recovery and the pace of rebound in their revenue growth. Also, A lessonthe companies from history who invested the most and registered strong revenue growth also displayed low CCC readings (categorized in Quartile 1), reflecting robust working capital efficiencies.

Working Capital Business Revenue Release Investment Growth

This demonstrates the importance of working capital management during the recovery phase of a crisis in facilitating a rebound; the S&P 1500 companies that were able to manage working capital efficiently could access cheap internal source of funding during recovery phase of the GFC allowing them to quickly deploy more cash towards growth activities.

WORKING CAPITAL INDEX 2021 17 Correlation between revenue growth and working capital efficiency as well as cash deployment

100.0% Bubble size= CFI/Sales, LTM June 2010 (in percentage)

Quartile 1 80.0%

60.0% 13.4%

40.0% Quartile 2 Quartile 3

20.0% 8.2% 8.1% Quartile 4

LTM Dec 2008- June 2011 (% change) 0.0%

6.9%6.9% -20.0% Revenue growth -40.0% 58.0 60.0 62.0 64.0 66.0 68.0 70.0 72.0 Cash Conversion Cycle, CY2011 (days)

Source: Capital IQ

Note: S&P 1500 companies have been categorized into four quartiles based on their revenue growth, with the first quartile representing the top 25% companies with the highest revenue growth within their industries, while the fourth quartile corresponds to the bottom 25% companies with the lowest revenue growth in their respective sectors.

WORKING CAPITAL INDEX 2021 18 5 Conclusion

The pandemic has put unprecedented financial pressures on businesses, compelling CFOs and corporate treasurers to re-evaluate their cash and liquidity management to ensure business and operational continuity Treasurers will continue to play an important role as businesses recover from the pandemic. We highlight four different approaches treasurers can take to navigate the crisis this year, depending on the speed of recovery and the strength of their balance sheets.

Expansionary: Companies with strong balance sheets and are expecting a fast recovery would likely invest aggressively either through organic or inorganic means for growth in 2021. Cheap cost of funding and high cash levels can provide the necessary firepower for these companies to execute their plans. The key priority for treasury in these companies will be to ensure that necessary cash is available at the right place, at right time and in right currency to fund high value transactions. Cautious aggression: Companies that are expecting quick recovery but have high leverage ratios may have challenges accessing external capital due to limitations to further stretch their balance sheet. Treasurers will need to balance funding growth while ensuring the company does not face liquidity challenges. Waiting game: Companies with slow expected recovery but with strong balance sheets will likely wait a little longer to invest in the growth. Focus for treasurers in these companies will likely be to continue with cash preservation activities like reduction in capex, M&A activities and discretionary expenses to create reserves for funding growth when the opportunities arise. On the Defensive: Companies with slow expected recovery and weak balance sheets will be the most at risk of further impacts from the crisis. Conserving liquidity will be the key priority as treasurers look to ensure the company has enough cash until the crisis blows over. While there are varied paths treasurers will have to take during recovery in 2021, we expect working capital optimization to continue to remain a key priority for treasurers. With ~US$507bn currently trapped in working capital that can potentially be released, it can provide a cheap source of funding to either support the growth for companies experiencing strong recovery or provide the liquidity cushion for businesses waiting to ride out the crisis.

WORKING CAPITAL INDEX 2021 19 TREASURY & PAYMENTS HowTREASURY & PAYMENTS to Benchmark Your WorkingHow to Benchmark Capital Your

AsWorking the economic recovery startsCapital to take shape post pandemic, effective working capital management is now center stage for companies globally as they look to optimize supply As the economic recovery starts to take shape post pandemic, effective working capital chains and release trapped liquidity to fund business and expansion opportunities. management is now center stage for companies globally as they look to optimize supply Related Insights chains and release trapped liquidity to fund business and expansion opportunities. Related Insights BY: GOURANG SHAH, GLOBAL HEAD FOR TREASURY AND WORKING CAPITAL OPTIMIZATION, WHOLESALE TREASURY AND PAYMENTS PAYMENTS J.P. MORGAN VAROON MANDHANA, HEAD OF WHOLESALE PAYMENTS SOLUTIONS, ASIA PACIFIC J.P. MORGAN Edit, nonet eicimusae BY: GOURANG SHAH, GLOBAL HEAD FOR TREASURY AND WORKING CAPITAL OPTIMIZATION, WHOLESALE TREASURY AND PAYMENTS PAYMENTSVIKRANT VERMA, J.P. MORGAN ADVISOR, WHOLESALE PAYMENTS SOLUTIONS, ASIA PACIFIC J.P. MORGAN nihitas doles aut expero VAROON MANDHANA, HEAD OF WHOLESALE PAYMENTS SOLUTIONS, ASIA PACIFIC J.P. MORGAN Edit, nonet eicimusae VIKRANT VERMA, ADVISOR, WHOLESALE PAYMENTS SOLUTIONS, ASIA PACIFIC J.P. MORGAN nihitas doles aut expero J.P. Morgan’s 2021 Working Capital Index report provides treasury and finance TREASURY AND PAYMENTS professionals with insights into the working capital performance of the S&P 1500 Landitas nest aut companiesJ.P. Morgan’s in 2021the past Working year. CapitalWe also Index assess report the impact provides of treasurythe pandemic and finance outbreak TREASURYfaccus. AND PAYMENTS acrossprofessionals industries with and insights focus into on how the workingcompanies capital can betterperformance manage of liquidity the S&P risks 1500 Landitas nest aut companies in the past year. We also assess the impact of the pandemic outbreak going forward. faccus. across industries and focus on how companies can better manage liquidity risks TREASURY AND PAYMENTS goingThe report forward. captures trends from the Working Capital Index, Cash Index and Cash Em simus imilis Conversion Cycles (CCC) of the S&P 1500 from 2011 to 2020. TREASURYpratempos AND PAYMENTS quistrum The report captures trends from the Working Capital Index, Cash Index and Cash Em simus imilis Conversion Cycles (CCC) of the S&P 1500 from 2011 to 2020. pratempos quistrum What is a cash conversion cycle? WhatCCC helps is in aquantifying cash conversion how efficiently cycle? a company is managing its working capital. It measures the amount of time it takes to convert inventory purchases into cash flows. CCC ishelps represented in quantifying as: how efficiently a company is managing its working capital. It measures the amount of time it takes to convert inventory purchases into cash flows. CCC is represented as: = $ + – = $ + – CCC DSO DIO DPO CCC DSO DIO DPViewO the text version The Cash Conversion Cycle (CCC) is the number of days it takes to convertView the text version inventory purchases into cash flows from sales. The CCC is a metric that helps quantifyThe Cash the Conversion working capital Cycle (CCC)efficiency is the numberof a company of days and it istakes derived to convert from three differentinventory purchasescomponents: into cash flows from sales. The CCC is a metric that helps quantify the working capital efficiency of a company and is derived from three different➔ components:Days Sales Outstanding (DSO) or the number of days taken to collect cash from customers ➔ Days Sales Outstanding (DSO) or the number of days taken to collect ➔ cashDays fromInventory customers Outstanding (DIO) or the number of days the company holds its inventory before selling it ➔ Days Inventory Outstanding (DIO) or the number of days the company ➔ holdsDays Payable its inventory Outstanding before selling(DPO) orit the number of days from the time a company procures raw materials to payment to suppliers ➔ Days Payable Outstanding (DPO) or the number of days from the time a company procures raw materials to payment to suppliers

Download the Report: Working Capital Index 2021 Download the Report: Working Capital Index 2021 6 Summary of Findings Key Takeaways at a Glance Key Takeaways at a Glance

$507 Estimated working capital that can be released across $ Estimated working capital 507 the S&P 1500 companies BILLION that can be released across the S&P 1500 companies BILLION View the text version

View the text version

Top three industries Top three industries showingTop three deterioration industries showingTop three improvement industries showingin CCC deterioration in 2020 showingin CCC improvement in 2020 (Number of days the CCC lengthened by) (Number of days the CCC shortened by) in CCC in 2020 in CCC in 2020 (Number of days the CCC lengthened by) (Number of days the CCC shortened by)

16.9 10.8 16.9Airlines Semiconductor10.8 Airlines Semiconductor

19.8 6.6 Aerospace Apparel &19.8 Defense 6.6Retail Aerospace Apparel & Defense Retail

39.9 3.2 39.9Oil & Gas 3.2Media upstream Oil & Gas Media upstream

View the text version

WORKING CAPITAL INDEX 2021 20 of companies in the S&P 1500 saw a deterioration in CCC of which: % of companies in the S&P 1500 64% saw• 86% a deterioration showed a lengthening in CCC of which:in DSO 64 • 86%87% experiencedshowed a lengthening an increase in inDSO DIO • 87% experienced an increase in DIO

View the text version

View the text version TREASURY & PAYMENTS How to Benchmark Your Working Capital

As the economic recovery starts to take shape post pandemic, effective working capital management is now center stage for companies globally as they look to optimize supply chains and release trapped liquidity to fund business and expansion opportunities. Related Insights

BY: GOURANG SHAH, GLOBAL HEAD FOR TREASURY AND WORKING CAPITAL OPTIMIZATION, WHOLESALE TREASURY AND PAYMENTS PAYMENTS J.P. MORGAN VAROON MANDHANA, HEAD OF WHOLESALE PAYMENTS SOLUTIONS, ASIA PACIFIC J.P. MORGAN Edit, nonet eicimusae VIKRANT VERMA, ADVISOR, WHOLESALE PAYMENTS SOLUTIONS, ASIA PACIFIC J.P. MORGAN nihitas doles aut expero

J.P. Morgan’s 2021 Working Capital Index report provides treasury and finance TREASURY AND PAYMENTS professionals with insights into the working capital performance of the S&P 1500 Landitas nest aut companies in the past year. We also assess the impact of the pandemic outbreak faccus. across industries and focus on how companies can better manage liquidity risks going forward. TREASURY AND PAYMENTS The report captures trends from the Working Capital Index, Cash Index and Cash Em simus imilis Conversion Cycles (CCC) of the S&P 1500 from 2011 to 2020. pratempos quistrum

What is a cash conversion cycle? CCC helps in quantifying how efficiently a company is managing its working capital. It measures the amount of time it takes to convert inventory purchases into cash flows. CCC is represented as:

= $ + –

CCC DSO DIO DPO View the text version

The Cash Conversion Cycle (CCC) is the number of days it takes to convert inventory purchases into cash flows from sales. The CCC is a metric that helps quantify the working capital efficiency of a company and is derived from three different components:

➔ Days Sales Outstanding (DSO) or the number of days taken to collect cash from customers

➔ Days Inventory Outstanding (DIO) or the number of days the company holds its inventory before selling it

➔ Days Payable Outstanding (DPO) or the number of days from the time a company procures raw materials to payment to suppliers

Download the Report: Working Capital Index 2021

Key Takeaways at a Glance

$507 Estimated working capital that can be released across BILLION the S&P 1500 companies

View the text version

Top three industries Top three industries showing deterioration showing improvement in CCC in 2020 in CCC in 2020 (Number of days the CCC lengthened by) (Number of days the CCC shortened by)

16.9 10.8 Airlines Semiconductor

19.8 6.6 Aerospace Apparel & Defense Retail

39.9 3.2 Oil & Gas Media upstream

View the text version

of companies in the S&P 1500 % saw a deterioration in CCC of which: 64 • 86% showed a lengthening in DSO • 87% experienced an increase in DIO

Related Insights Top four industries with the highest rise in cash View the text version levels in 2020 Related Insights Top four industries with the highest rise in cash TREASURY AND PAYMENTS levels in 2020Airlines 50.6% Edit, nonet eicimusae TREASURYnihitas AND doles PAYMENTS aut expero % Apparel & AccessoriesAirlines 50.67.1 % Edit, nonet eicimusae nihitas doles aut expero ApparelApparel & Accessories Retail 5.8%% 7.1 TREASURY AND PAYMENTS % IndustrialApparel Machinery Retail 5.85.5% Landitas nest aut TREASURYfaccus. AND PAYMENTS Industrial Machinery 5.5% Landitas nest aut TREASURYfaccus. AND PAYMENTS Top four industries with maximum growth expected Em simus imilis during recovery (based on estimates in 2021 revenue) TREASURYpratempos AND PAYMENTS quistrum Top four industries with maximum growth expected Em simus imilis % pratempos quistrum duringSemiconductor recovery (based on estimates in 2021 revenue) 40.8 SemiconductorE-commerce 33.040.8%% PharmaceuticalsE-commerce 20.933.0% TechnologyPharmaceuticals Software 20.920.6%% Technology Software 20.6% View the text version

View the text version

Growth in revenue during global financial crisis recovery (December 2008 — June 2011) Growth in revenue during global financial crisis recovery (December 2008 — June 2011) 58.8% -13.2% % Companies with% -13.2Companies with top58.8 performing CCC bottom performing CCC Companies with Companies with top performing CCC bottom performing CCC

View the text version WORKING CAPITAL INDEX 2021 21 View the text version

Download the 2020 and 2019 Working Capital Index reports. To learn more, please contact your J.P. Morgan representative. Download the 2020 and 2019 Working Capital Index reports. To learn more, please contact your J.P. Morgan representative.

Working Capital Report Industries

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Gourang Shah GlobalGourang Head ofShah Treasury and Working Capital Solutions WholesaleGlobal headPayments for Treasury and Working Capital Optimization J.P. WholesaleMorgan Payments [email protected]. Morgan [email protected]

Varoon Mandhana Head of Wholesale Payments Solutions, Asia Pacific J.P. Morgan Varoon Mandhana [email protected] Head of Wholesale Payments Solutions, Asia Pacific J.P. Morgan [email protected]

Vikrant Verma Advisor, Wholesale Payments Solutions, Asia Pacific J.P. VikrantMorgan Verma [email protected], Wholesale Payments Solutions, Asia Pacific J.P. Morgan [email protected]

For additional information or if you require a review and assessment of working capital opportunities in your organization, please contact a J.P. Morgan Wholesale Payments team representative.

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