The current economy has elevated the old saying that ‘Cash is King’ to new heights. With the altered nature of business flows arising from the COVID-19 crisis, many enterprises face new challenges to their continued existence, much less success. Being aware of Working Capital balances and taking proactive action has never been more important to businesses of all sizes. At Perficient, we have utilized Oracle Analytics in the Cloud (OAC) and Oracle’s Autonomous Data Warehouse (ADW) to develop a Working Capital analytics application that provides insights and actionable information to financial executives. Our Working Capital Analytics application provides high-level metrics relating to working capital and deeper dives into current assets and liabilities’ primary components.
Please check out this short 5-minute video to see our Working Capital Analytics application in action:
Key Working Capital Metrics and Current Trends
The first two sections of this application address high-level questions related to current Working Capital, and current year trends such as:
- What is our current Working Capital Balance?
- What is the related interest expense using our Cost of Capital?
- How long will our Cash last?
- What is the makeup of Current Assets?
- How fast is our inventory turning?
- How do the trends of Current Asset components compare to each other?
- Is Working Capital trending up or down?
To address these questions, the application provides high-level metrics related to overall working capital, including Current Ratio, Acid Test Ratio, Days Cash on Hand, DSO, DPO, and Days Sales in Inventory. Additionally, the application provides a tool for estimating interest costs related to the working capital investment. A second page provides trending information related to the components of Working Capital. These trend reports illustrate that a fairly stable Working Capital trend can hide less desirable trends in asset categories.
Analysis of Current Assets
The next section of the application examines the Current Assets components of Working Capital in descending order of liquidity, starting with Cash. This subsection addresses questions such as:
- How has the Cash (and cash equivalents) balance trended over the past 12 months?
- Is there a trend in Days Cash on Hand that indicates a problem?
- How has our position trended by currency held?
- Are DSO and DPO headed in the right directions?
Because the ratios on this page reflect not only changes in Asset balances but show the effects of operations, these visualizations can lead to further investigation.
- Are the period Operating Expenses growing faster than Cash balance?
- Is Revenue falling causing the rise in DSO?
- Is the Cost of Goods Sold falling because of reduced sales, resulting in an increase in DPO?
After Cash, the next most liquid of the Current Assets is Accounts Receivable. This subsection is in two parts, beginning with trend analyses that address questions such as:
- How do the trends of the AR Aging buckets compare with each other?
- How long are our customers taking to pay their invoices?
- Do we have a concern with the collectability of our AR?
Following these summary trend visualizations, the application turns to current AR balances. The visualizations on the next page of this subsection focus on specific issues related to open Receivables:
- Where are our customers with balances located? Are there known concerns about one geography over another?
- Within a selected state, which customer has the highest balance? How long have these balances been outstanding
- Who is the sales representative responsible for these customers? What is he/she doing to collect older balances?
- Are our balances for this state disproportionately distributed across our customer categories?
The questions raised by this analysis allow specific follow-up actions to address any AR balance issues.
The last subsection on Current Assets focuses on the least liquid component, Inventory. This section’s analyses focus primarily on current inventory, though there is a trend of Raw Material Inventory vs. Finished Goods Inventory.
Questions addressed in this section include:
- In which inventory categories is our investment greatest?
- Within a selected category, which items represent the greatest investment?
- Where is our inventory in this category located?
- Are there items with significant excess stock investments?
The visualizations supporting these questions can lead to further investigation with product and inventory managers. This can further emphasize the impact of their decisions on the financial position of the organization.
Analysis of Current Liabilities
The final section of this application turns to Current Liabilities. Though this may appear to be of lesser concern than Asset categories, the visualizations in the final two sections of the application aid in identifying additional business issues.
As with Accounts Receivable, the first page in this section considers trends over the past twelve months and addresses questions related to:
- In what direction is our AP balance trending?
- Do we have issues with the timely payment of our vendors and suppliers?
This section’s final page looks at the current AP, beginning with the vendor state’s distribution and selected states, suppliers, and supplier type details. Questions addressed on this page include:
- Where are our vendors located?
- What are our biggest balances by a vendor?
- How are our balances distributed by vendor type?
Thus, the Working Capital analysis application supports investigation of Working Capital drivers and provides points of departure for follow up on specific questions. Like any good analytic tool, it leads to additional questions to address specific issues raised.
How to Obtain this Solution
To deploy this solution, a subscription to Oracle Analytics Cloud and Oracle Autonomous Data Warehouse is required. Perficient’s Oracle Analytics consultants can implement this solution in a matter of weeks. To learn more about our analytics practice and this solution, contact us.