Data-Driven Working Capital Management as a Lever for Enterprise Valuation
The current climate of geopolitical and macroeconomic uncertainty has a significant impact on how companies manage their working capital. On one hand, businesses need resilience and agility to respond to a changing environment. On the other hand, reigniting growth remains a key priority.
From a shareholder value perspective, the role and importance of working capital management is often underestimated. Based on discussions I’ve had with business owners, this may partly stem from habits formed during the previous era of growth. Many CFOs rose to their roles during the zero-interest-rate years and have focused primarily on optimising EBIT, even though shareholder value ultimately derives from net income and growth.
Growth, especially when driven by strong business performance, often results in increased working capital requirements. Too much capital becomes tied up in operations and inventory, which in turn burdens cash flow and financing capacity, limiting the company’s ability to grow or invest.
That’s why it’s critical for growth-oriented companies to proactively model and minimise net working capital needs, keeping the business structure healthy even during expansion.
By leveraging AI, data, and modern analytics, companies can gain visibility into where working capital is tied up and how to release it. Long and complex business processes often lock up capital in inventory, supply chains, receivables, and procurement contracts. The data required to address this challenge already exists across enterprise functions and IT systems. The goal should be end-to-end process visibility across functions and platforms to enable ongoing optimisation and forecasting of working capital needs.
Getting working capital levels and timing right is a strategic capability. Boards must ensure sufficient liquidity buffers and financing, but also drive shareholder value through growth and profitability. In certain industries, it may even be strategic to pursue negative working capital (as seen in companies like Dell or Walmart).
Yet very few companies make fact-based decisions or track working capital dynamics at the board level, despite its direct impact on enterprise value and the fact that technology now makes this visibility possible.
This article was originally published at Director’s Institute Finland blog (in Finnish): https://dif.fi/ajankohtaista/hallitusblogi/tiedolla-johdettu-kayttopaaoman-hallinta-mahdollistaisi-suomalaisyritysten-arvon-kehittamisen/
