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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

Investments or strategies discussed herein may not be suitable for all investors. Neither J.P. Morgan nor any of its directors, officers, employees or agents shall incur in any responsibility or liability whatsoever to the Company or any other party with respect to the contents of any matters referred herein, or discussed as a result of, this material. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice or investment recommendations. Please consult your own tax, legal, accounting or investment advisor concerning such matters.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of J.P. Morgan, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed to be reliable. Neither the author nor J.P. Morgan makes any representations or warranties as to the information’s accuracy or completeness. The information contained herein has been provided solely for informational purposes and does not constitute an offer, solicitation, advice or recommendation, to make any investment decisions or purchase any financial instruments, and may not be construed as such. 

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Latin America Working Capital