Today's Edition
KHALED AL KHAWALDEH (ABU DHABI)
According to a new report from global consulting firm PwC, UAE businesses are amongst the most efficient in the region at converting sales into revenue, maintaining a strong working capital trend over the last two years.
Published on Monday, the 2024 Working Capital Study analysed the capital management of major firms across the region and found general improvements in efficiency following a significant dip during the COVID-19 pandemic.
Out of the eight countries surveyed, the UAE was found to have the third shortest net working capital (NWC) at 83 days, behind Kuwait and Bahrain, which reported 74 days and 44 days, respectively.
NWC days measure how long it takes a company to convert its net working capital into revenue.
This metric reflects a company’s efficiency in managing its short-term assets and liabilities and helps assess how well a company is managing its liquidity.
It can indicate how long funds are tied up in the operational cycle before they generate revenue.
Lower net working capital days generally suggest better efficiency and quicker turnover.
The UAE’s performance remained consistent between 2022 and 2023 and was substantially better than that of other large economies in the region, such as Saudi Arabia and Egypt.
Moreover, PwC noted an increased focus from UAE investors and shareholders on managing working capital, which they said had “resulted in large-scale internal transformations, including a significant focus on working capital or working capital financing exercises to reduce the working capital on the balance sheet.”
The report also highlighted that working capital had become more crucial in dealmaking, with capital efficiency increasingly high on the agenda.
“In the dynamic economic landscape of the Middle East, effective working capital management is crucial. Optimising working capital not only unlocks significant value and enhances liquidity but also strengthens resilience against market volatility. By focusing on sustainable working capital improvements, businesses can secure their financial stability, support growth initiatives, and pave the way for long-term success,” said Mo Farzadi, Business Restructuring Services Leader at PwC Middle East.
The report found that large companies fared better in improving net working capital compared to smaller companies, which it said were increasingly experiencing acute financial stress.
It noted that despite overall improvements in the efficiency of firms, there had been a 4 percent increase in debt in 2023, a 37 percent rise in interest costs, $5 billion in financing costs to shareholders, and an estimated $50 billion in cash trapped on corporate balance sheets that PwC believes could be realised into profits.
