Treasury and Payments
How to benchmark and optimize your working capital in Latin America
As the post-pandemic economic recovery accelerates, effective working capital management is critical for companies seeking to optimize supply chains and unlock liquidity needed to fund daily operations and expansion opportunities in Latin America.
J.P. Morgan’s 2021 Latin America Working Capital Index provides treasury and finance professionals with insight into the working capital performance of Latin American companies in the past year. We also assess the impact of the global pandemic across industries and identify ways companies can better manage liquidity risks going forward.
The index reveals trends from the working capital index, cash index and cash conversion cycles (CCC) of Latin American corporates across Argentina, Brazil, Chile, Colombia, Mexico and Peru in addition to comparisons to the S&P 1500 from 2012 to 2020.
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:
The 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
Key takeaways at a glance
To learn more about benchmarking and optimizing global working capital, please contact your
J.P. Morgan representative.
Source: Capital IQ
Note: Calculation assumes that every company’s DSO, DPO and DIO improves to the next quartile
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