Ernst & Young LLP, which cranks out studies almost as fast as Apple does iPods, has just released one on working capital, with a conclusion very much in tune with the times.
Up to $1 trillion of much-needed liquidity could be tied up in inventory, receivables and other areas for the 2,000 largest companies in the U.S. and Europe, the study says. That comes out to about $60 million for every $1 billion in sales.
The reasons? Heightened volatility in currency and commodity prices and most of all, a sort of inventory shock resulting from the global financial meltdown. "Inventories did not decrease at the same rate as the drop in demand since
companies' supply chains were not responsive enough to keep pace, said Steve Payne, Americas leader for working capital management at E&Y.
Inventory levels in the final quarter of 2008 were up 10% in the U.S. and 4% in Europe, the report says. -
Kenneth Klee
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