November 25, 2025 • 13 mins
Managing working capital is absolutely vital for any business - it's the part of a company’s trading that hasn’t yet translated into cashflow.
Every year, the team at McGrathNicol Advisory release their Working Capital Report - revealing how much cash is locked up within Australian companies, and how they stack up against the rest of the world.
Jason Ireland and Sean Wiles - partners at McGrathNicol Advisory - talk to Sean Aylmer about the thirteenth annual Working Capital Report, and what it reveals about the health of Aussie businesses.
McGrathNicol is a supporter of Fear & Greed.
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Find out more: https://fearandgreed.com.au/
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fear and Greed Q and A where we
ask and answer questions about business, investing, economics, politics and more.
I'm Sean Aylmer. Managing working capital is absolutely vital for
any business. Put simply, working capital is the part of
a company's trading that hasn't yet translated into cashlow. It
tells us plenty about the health of a company and
the way its business operates. Every year, the team at
(00:27):
mcgar nickel Advisory release their Working Capital Report, revealing how
much cash is locked up within Australian companies and how
they stuck up against the rest of the world. Jason
Ireland and Sean Wiles are partners at mcgart nickel Advisory
and co authors of the thirteenth annual Working Capital Report.
Mcgar nichol is a great supporter of this podcast. Jason,
welcome back to Fear and Greed.
Speaker 2 (00:49):
Thank Sean.
Speaker 1 (00:49):
Great to be and Sean, welcome back.
Speaker 3 (00:51):
H Sean.
Speaker 1 (00:53):
Firstly, congratulations thirteen years on the Working Capital Report is
quite an effort. Let's start with have you, Sean talk
us through some of the headline results, how working capital
cycles have changed over the last year, but even over
the longer term.
Speaker 3 (01:09):
Yeah, thanks Sean, we took the opportunity this year to
expand our research. I feel like we looked at thirteen
sectors this year, covering close to three hundred asx five
hundred companies, so sort of lifted the sample base. That
translates to over to trillion in market cap, so quite
a meaningful sample size just on that metric. And what
(01:33):
we saw this year, Sean, at the headline level was
that Australian businesses put a lot of focus on and
effort into managing their working capital in twenty twenty five.
In fact, companies in eleven of the thirteen sectors we
covered shortened the length of their networking capital cycles, so
quite a strong bias towards strong performance around working capital
(01:56):
management this year. And we saw i'd say the most
interesting point around all of that. Whereas in twenty twenty
four improvement was driven by companies paying their suppliers more slowly,
they flipped the dial this year and focused more on
better inventory management and better billings and collection management. So
(02:16):
Jason and I often talk about this. That's a big
tick in the box I think for Australian businesses and
a much more sustainable approach to managing working capital.
Speaker 1 (02:27):
Okay, Jason, if you are working capital days means your
people are releasing money cash flow eight point two billion
dollars in fact in locked up cash. Once you went
through these companies, I'm interested in kind of the large caps,
the mid market, the smaller operators. Are they all the same?
(02:48):
Actually I went through some of the data there and
for example, in the same categories, you can have huge
differences in terms of working day cycles. But I'm kind
of pushing the SME market.
Speaker 3 (02:58):
Really, yes, there.
Speaker 2 (02:59):
Is huge difference, no doubt. And there's a big variance
in the size of the company that's in the listed
sample anyway, so you can, and the report looks at
each company that we use in the sample, so you can,
if you're reading the report, you can match yourself against
a company of similar size. But let's assume, though, however,
that the ASX listed entities are maybe larger than the
(03:22):
ones that aren't AX listed, and so those smaller SMME
market are suppliers to these entities. And as Sean said,
this year, unlike last year, they were paid more quickly,
they were still paid a little bit slower than you
would like, so you still saw the larger companies shifting
(03:43):
the cash flow load to smaller companies if we assume
that's the right categorization of a supplier to an AX
listed So that means that those smaller companies just have
to also be really good at cash and working capital management.
They also have to be really good at all of
their processes. So Sean talked about how the processes for
(04:04):
collecting and managing inventory had improved at that larger end
of town. Well, all companies really need to focus on
cash flow. In fact, more so those SME companies need
to be focused on cash flow because sometimes they're at
the behest of those larger entities who are deciding and
changing how long they're going to take to pay them.
(04:26):
They have to be really good at it.
Speaker 1 (04:28):
Sean, what about sector BI sector, I mean, Jason kind
of alluded to it, but are there some better than others?
Speaker 3 (04:35):
Yeah, Sean that the standout sector we saw this year
was agriculture, food and beverage, typically a sector that carries
a very big working capital load, and the numbers still
show that, but in terms of year on year movement,
it had the biggest improvement in twenty twenty five. It
was close to three weeks taken out of their networking
(04:57):
capital cycles, so again a significant shift, and with health
and age care as another key sector, they were the
two that we saw. They were able to shorten the
length of their networking capital cycle by a week or more.
And Jason and I talk about these metrics in days
for a reason, and the days sometimes sound quite small
(05:21):
in isolation, but that incremental improvement for businesses across a
sample like this actually, as you said, Sean, converts to
a really big cash flow impact. Eight point two billion
dollars of cash release this year isn't insignificant. So agrifood
and beverage. We saw a big release in inventry as
a key driver, and construction was another industry that fared well.
(05:45):
Again a sector that we often work in. It's got
a very high working capital load or complexity around its
working capital cycle, but we saw the shortest cycle since
twenty twenty one in that sector, and it was really
driven by what I was saying before, better focus on
customer management, particularly around the billing cycle. The two sectors
(06:07):
that we saw at the other end of the scale
were communications and energy. But I thought interestingly about energy,
they actually improved most of their metrics. They just passed
on the improvements to their supply base and some so
they they'll paint their supplies.
Speaker 1 (06:22):
Very generous of them.
Speaker 3 (06:23):
That's right. You've got something out of the utilities companies
for once, which is great.
Speaker 1 (06:28):
That three weeks is quite phenomenal. I mean, if you've
got a fortnightly pay run that suddenly you've got all
this cash there that you didn't have a year ago.
Is that or am I reading that wrong?
Speaker 3 (06:38):
No, that's the right interpretation. I think Jason and I
talk about agri particularly, is you know, there's a there's
a lot of differences across companies depending on what sort
of produce they are dealing with or products that they
are selling. But we saw a real strong and big
release in their inventory load this year which really drove
(07:00):
that improvement.
Speaker 1 (07:01):
I am going to just gave a bit further on that.
Like I looked at a couple of ax companies in
that sector, and you know, I am naming names, but
without discussing which was good and which was bad. If
you compare Ingham's to Treasury Wine estates, right, different products obviously,
but hugely different working capital cycles. Is that a sector thing?
Speaker 2 (07:26):
Is it?
Speaker 1 (07:26):
I'm not really trying to highlight anyone good or bad here.
I'm just interested in, Jason, is it a sector thing,
is it a company thing?
Speaker 2 (07:32):
What is it? I think for all, regardless of your
size or your sector, it's about getting your working capital
cycle as good as you think it can be, so
just always will be. You know, think about those two.
One of their products lasts very long and the other
one doesn't, and so you have a very different inventory
(07:53):
management cycle between those two. So what we're always saying is, yes,
compare within your sector that try and pair against yourself.
How much infantry do you think you should hold, which
ideal for you and how much and how long do
you think you should be collecting or paying. So it's
about finding your own sweet spot. And what we try
(08:14):
and do when we help companies is we actually look
at the best of their own performance over time and
see what we're doing right then, and when it was
the worst, what we're doing what went wrong then, and
so we try and bring the worst that variance between
the best and the worst much closer that you just
get at.
Speaker 1 (08:30):
Humming, Jason, staying with you, how much of this is
part of the economic cycle. So business conditions, according to
your report have picked up a bit, but i'd imagine
when business conditions are better, people are more likely to
pay on time.
Speaker 2 (08:44):
Yeah, I mean, you know what we're going to say
about this, because we've been doing this for thirteen years.
We are self confessed working capital and cash flow nerds.
We will say cash is always important. Sean's often already
talked about how much we talk about this. It really
is a bit sad. But yes, I think that conditions
have been tough throughout twenty five. You can see in
(09:06):
our sample that there's been a bit of an improvement.
A lot of people got more revenue, and some were
able to even turn that revenue into more profit despite
cost pressure. But I don't think we're calling this the
end of the difficulty in economic conditions. I think we'll
see a continued, hopefully slow improvement over time. But as
(09:27):
I said, cash will always be vital, good or bad,
but particularly in tougher times, and you alluded to it before,
if you look at the difference between the best and
the worst performance.
Speaker 3 (09:39):
Even within sectors.
Speaker 2 (09:41):
Leaving aside the conversation we just had about vast differences
between companies, but just within sectors, huge difference at least
eighty days difference between the best and the worst eighty
days almost three months difference in a working capital cycle.
So what it shows us is that the companies that
(10:02):
work at this can get a massive competitive advantage even
within their sector. And who doesn't want more cash? Who
doesn't want to, as you said, convert your trading into
cash flow faster? And so you can see, you can
look and you can listen to us. Cash flow and
working capital management is a science and a process. It's
(10:23):
not an art where accountants we're way from artists. This
is about processes. This is about getting things right and
knowing what you're trying to achieve and knowing within your
team what your part is to play in working capital management.
And if you get that right, you're so far ahead
of your competitors because not everyone is focusing on it
(10:44):
when they're focusing on other things in their business.
Speaker 1 (10:47):
Sean, how do we compare Australia in terms of work
and capital performance versus the rest of the world?
Speaker 3 (10:54):
Should I I'd give us straining companies a solid a
this year and I think we've seen a trend in this.
On average, Australian companies stack up well. They collect from
their customers faster, they pay their supplies faster, so that
net customer supplier cycle across most Australian businesses and definitely
(11:15):
across the sample that we looked at, is shorter when
you compare it to US counterparts, the European and Asian counterparts.
So we manage that part of the cycle, or tend
to manage that part of the cycle really well compared
to international businesses as it expect sewn. I think where
Australian companies still lag the other sectors is in inventory management.
(11:39):
But a lot of that you talk to some of
the some of the disparity, but a lot of that's
sort of baked into the way Australian companies need to
do business and need to manage their inventory wade. They
often have to carry more inventory than their international counterparts
because they're further away from their supplies and they're further
away from their customers. So that vast geographical spread does
(12:00):
play into some of the metrics which are hard to avoid.
And the lower population density of Australia also plays into
that as well. So if you're a distributor, a manufacturer distributor,
a lot of companies in the Australian economy do a
lot of the things across their working capital cycle and
don't rely on as many other sort of counterparts or
(12:23):
stakeholders as part of that. So they're managing the whole
cycle end to end that they're often going to have
to carry a little bit more inventory than their international
counterparts that are much closer to the people that they're servicing.
Speaker 1 (12:36):
Chasing the takeaway from the thirteenth year of this report,
I mean, you've probably given it to us already, but
give it to us once more.
Speaker 2 (12:42):
I think it is Sean. It's about getting your processes
right because you can just differentiate yourself. So regardless of
economic conditions, you should be focused on cash flow. But
even when you are even more so when margins are tight,
focus on cash flow. And you know what I think
is a testament to probably the coverage of the Fear
(13:05):
and Greed Show because this we talk about working capital
reports every year on this show. Look at how well
the improvement is throwing is flying through the Australian market.
You can get it, you can get it right. You
can make a big improvement with with with focuses on process.
Speaker 1 (13:21):
Jason Sewan, thank you for talking to Fear and Greed.
Speaker 3 (13:23):
Thanks Sean, Thank you.
Speaker 1 (13:24):
That was Jason Island and Sewn Wiles's partners at mcgrah nicol,
a great supporter of this podcast. I'm Sean Almer, and
this is Fear and Greed Q and DA
Welcome to Fear and Greed Q and A where we
ask and answer questions about business, investing, economics, politics and more.
I'm Sean Aylmer. Managing working capital is absolutely vital for
any business. Put simply, working capital is the part of
a company's trading that hasn't yet translated into cashlow. It
tells us plenty about the health of a company and
the way its business operates. Every year, the team at
(00:27):
mcgar nickel Advisory release their Working Capital Report, revealing how
much cash is locked up within Australian companies and how
they stuck up against the rest of the world. Jason
Ireland and Sean Wiles are partners at mcgart nickel Advisory
and co authors of the thirteenth annual Working Capital Report.
Mcgar nichol is a great supporter of this podcast. Jason,
welcome back to Fear and Greed.
Speaker 2 (00:49):
Thank Sean.
Speaker 1 (00:49):
Great to be and Sean, welcome back.
Speaker 3 (00:51):
H Sean.
Speaker 1 (00:53):
Firstly, congratulations thirteen years on the Working Capital Report is
quite an effort. Let's start with have you, Sean talk
us through some of the headline results, how working capital
cycles have changed over the last year, but even over
the longer term.
Speaker 3 (01:09):
Yeah, thanks Sean, we took the opportunity this year to
expand our research. I feel like we looked at thirteen
sectors this year, covering close to three hundred asx five
hundred companies, so sort of lifted the sample base. That
translates to over to trillion in market cap, so quite
a meaningful sample size just on that metric. And what
(01:33):
we saw this year, Sean, at the headline level was
that Australian businesses put a lot of focus on and
effort into managing their working capital in twenty twenty five.
In fact, companies in eleven of the thirteen sectors we
covered shortened the length of their networking capital cycles, so
quite a strong bias towards strong performance around working capital
(01:56):
management this year. And we saw i'd say the most
interesting point around all of that. Whereas in twenty twenty
four improvement was driven by companies paying their suppliers more slowly,
they flipped the dial this year and focused more on
better inventory management and better billings and collection management. So
(02:16):
Jason and I often talk about this. That's a big
tick in the box I think for Australian businesses and
a much more sustainable approach to managing working capital.
Speaker 1 (02:27):
Okay, Jason, if you are working capital days means your
people are releasing money cash flow eight point two billion
dollars in fact in locked up cash. Once you went
through these companies, I'm interested in kind of the large caps,
the mid market, the smaller operators. Are they all the same?
(02:48):
Actually I went through some of the data there and
for example, in the same categories, you can have huge
differences in terms of working day cycles. But I'm kind
of pushing the SME market.
Speaker 3 (02:58):
Really, yes, there.
Speaker 2 (02:59):
Is huge difference, no doubt. And there's a big variance
in the size of the company that's in the listed
sample anyway, so you can, and the report looks at
each company that we use in the sample, so you can,
if you're reading the report, you can match yourself against
a company of similar size. But let's assume, though, however,
that the ASX listed entities are maybe larger than the
(03:22):
ones that aren't AX listed, and so those smaller SMME
market are suppliers to these entities. And as Sean said,
this year, unlike last year, they were paid more quickly,
they were still paid a little bit slower than you
would like, so you still saw the larger companies shifting
(03:43):
the cash flow load to smaller companies if we assume
that's the right categorization of a supplier to an AX
listed So that means that those smaller companies just have
to also be really good at cash and working capital management.
They also have to be really good at all of
their processes. So Sean talked about how the processes for
(04:04):
collecting and managing inventory had improved at that larger end
of town. Well, all companies really need to focus on
cash flow. In fact, more so those SME companies need
to be focused on cash flow because sometimes they're at
the behest of those larger entities who are deciding and
changing how long they're going to take to pay them.
(04:26):
They have to be really good at it.
Speaker 1 (04:28):
Sean, what about sector BI sector, I mean, Jason kind
of alluded to it, but are there some better than others?
Speaker 3 (04:35):
Yeah, Sean that the standout sector we saw this year
was agriculture, food and beverage, typically a sector that carries
a very big working capital load, and the numbers still
show that, but in terms of year on year movement,
it had the biggest improvement in twenty twenty five. It
was close to three weeks taken out of their networking
(04:57):
capital cycles, so again a significant shift, and with health
and age care as another key sector, they were the
two that we saw. They were able to shorten the
length of their networking capital cycle by a week or more.
And Jason and I talk about these metrics in days
for a reason, and the days sometimes sound quite small
(05:21):
in isolation, but that incremental improvement for businesses across a
sample like this actually, as you said, Sean, converts to
a really big cash flow impact. Eight point two billion
dollars of cash release this year isn't insignificant. So agrifood
and beverage. We saw a big release in inventry as
a key driver, and construction was another industry that fared well.
(05:45):
Again a sector that we often work in. It's got
a very high working capital load or complexity around its
working capital cycle, but we saw the shortest cycle since
twenty twenty one in that sector, and it was really
driven by what I was saying before, better focus on
customer management, particularly around the billing cycle. The two sectors
(06:07):
that we saw at the other end of the scale
were communications and energy. But I thought interestingly about energy,
they actually improved most of their metrics. They just passed
on the improvements to their supply base and some so
they they'll paint their supplies.
Speaker 1 (06:22):
Very generous of them.
Speaker 3 (06:23):
That's right. You've got something out of the utilities companies
for once, which is great.
Speaker 1 (06:28):
That three weeks is quite phenomenal. I mean, if you've
got a fortnightly pay run that suddenly you've got all
this cash there that you didn't have a year ago.
Is that or am I reading that wrong?
Speaker 3 (06:38):
No, that's the right interpretation. I think Jason and I
talk about agri particularly, is you know, there's a there's
a lot of differences across companies depending on what sort
of produce they are dealing with or products that they
are selling. But we saw a real strong and big
release in their inventory load this year which really drove
(07:00):
that improvement.
Speaker 1 (07:01):
I am going to just gave a bit further on that.
Like I looked at a couple of ax companies in
that sector, and you know, I am naming names, but
without discussing which was good and which was bad. If
you compare Ingham's to Treasury Wine estates, right, different products obviously,
but hugely different working capital cycles. Is that a sector thing?
Speaker 2 (07:26):
Is it?
Speaker 1 (07:26):
I'm not really trying to highlight anyone good or bad here.
I'm just interested in, Jason, is it a sector thing,
is it a company thing?
Speaker 2 (07:32):
What is it? I think for all, regardless of your
size or your sector, it's about getting your working capital
cycle as good as you think it can be, so
just always will be. You know, think about those two.
One of their products lasts very long and the other
one doesn't, and so you have a very different inventory
(07:53):
management cycle between those two. So what we're always saying is, yes,
compare within your sector that try and pair against yourself.
How much infantry do you think you should hold, which
ideal for you and how much and how long do
you think you should be collecting or paying. So it's
about finding your own sweet spot. And what we try
(08:14):
and do when we help companies is we actually look
at the best of their own performance over time and
see what we're doing right then, and when it was
the worst, what we're doing what went wrong then, and
so we try and bring the worst that variance between
the best and the worst much closer that you just
get at.
Speaker 1 (08:30):
Humming, Jason, staying with you, how much of this is
part of the economic cycle. So business conditions, according to
your report have picked up a bit, but i'd imagine
when business conditions are better, people are more likely to
pay on time.
Speaker 2 (08:44):
Yeah, I mean, you know what we're going to say
about this, because we've been doing this for thirteen years.
We are self confessed working capital and cash flow nerds.
We will say cash is always important. Sean's often already
talked about how much we talk about this. It really
is a bit sad. But yes, I think that conditions
have been tough throughout twenty five. You can see in
(09:06):
our sample that there's been a bit of an improvement.
A lot of people got more revenue, and some were
able to even turn that revenue into more profit despite
cost pressure. But I don't think we're calling this the
end of the difficulty in economic conditions. I think we'll
see a continued, hopefully slow improvement over time. But as
(09:27):
I said, cash will always be vital, good or bad,
but particularly in tougher times, and you alluded to it before,
if you look at the difference between the best and
the worst performance.
Speaker 3 (09:39):
Even within sectors.
Speaker 2 (09:41):
Leaving aside the conversation we just had about vast differences
between companies, but just within sectors, huge difference at least
eighty days difference between the best and the worst eighty
days almost three months difference in a working capital cycle.
So what it shows us is that the companies that
(10:02):
work at this can get a massive competitive advantage even
within their sector. And who doesn't want more cash? Who
doesn't want to, as you said, convert your trading into
cash flow faster? And so you can see, you can
look and you can listen to us. Cash flow and
working capital management is a science and a process. It's
(10:23):
not an art where accountants we're way from artists. This
is about processes. This is about getting things right and
knowing what you're trying to achieve and knowing within your
team what your part is to play in working capital management.
And if you get that right, you're so far ahead
of your competitors because not everyone is focusing on it
(10:44):
when they're focusing on other things in their business.
Speaker 1 (10:47):
Sean, how do we compare Australia in terms of work
and capital performance versus the rest of the world?
Speaker 3 (10:54):
Should I I'd give us straining companies a solid a
this year and I think we've seen a trend in this.
On average, Australian companies stack up well. They collect from
their customers faster, they pay their supplies faster, so that
net customer supplier cycle across most Australian businesses and definitely
(11:15):
across the sample that we looked at, is shorter when
you compare it to US counterparts, the European and Asian counterparts.
So we manage that part of the cycle, or tend
to manage that part of the cycle really well compared
to international businesses as it expect sewn. I think where
Australian companies still lag the other sectors is in inventory management.
(11:39):
But a lot of that you talk to some of
the some of the disparity, but a lot of that's
sort of baked into the way Australian companies need to
do business and need to manage their inventory wade. They
often have to carry more inventory than their international counterparts
because they're further away from their supplies and they're further
away from their customers. So that vast geographical spread does
(12:00):
play into some of the metrics which are hard to avoid.
And the lower population density of Australia also plays into
that as well. So if you're a distributor, a manufacturer distributor,
a lot of companies in the Australian economy do a
lot of the things across their working capital cycle and
don't rely on as many other sort of counterparts or
(12:23):
stakeholders as part of that. So they're managing the whole
cycle end to end that they're often going to have
to carry a little bit more inventory than their international
counterparts that are much closer to the people that they're servicing.
Speaker 1 (12:36):
Chasing the takeaway from the thirteenth year of this report,
I mean, you've probably given it to us already, but
give it to us once more.
Speaker 2 (12:42):
I think it is Sean. It's about getting your processes
right because you can just differentiate yourself. So regardless of
economic conditions, you should be focused on cash flow. But
even when you are even more so when margins are tight,
focus on cash flow. And you know what I think
is a testament to probably the coverage of the Fear
(13:05):
and Greed Show because this we talk about working capital
reports every year on this show. Look at how well
the improvement is throwing is flying through the Australian market.
You can get it, you can get it right. You
can make a big improvement with with with focuses on process.
Speaker 1 (13:21):
Jason Sewan, thank you for talking to Fear and Greed.
Speaker 3 (13:23):
Thanks Sean, Thank you.
Speaker 1 (13:24):
That was Jason Island and Sewn Wiles's partners at mcgrah nicol,
a great supporter of this podcast. I'm Sean Almer, and
this is Fear and Greed Q and DA
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