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finance

recap: what is financial cycle time?

figure 2

WINNERS LEAGUE biotechnology

AbbVie 21 Celgene 27.5 Gilead 37.8 Average* 60.9 days pharmaceuticals

Allergan 9 AstraZeneca 13.6 Bristol-Myers Squibb 34 Average* 93.8 days h e a lt h c a r e providers & services

textile, apparel & luxury goods

VF 68.3 PVH 70 Luxottica 71.6 Average* 147.4 days automobiles

Peugeot -5.9 Renault -3.3 Fuji Heavy Industries 36.4 Average* 168.8 days airlines

h e a lt h c a r e equipment & supplies

aerospace & defence

Boston Scientific 61.4 Danaher 68.9 Medtronic 76.1 Average* 116.6 days

Thales -77.3 BAE Systems -46.8 Bombardier -6.4 Average* 64.8 days

beverages

Dr Pepper Snapple -7.4 Coca-Cola 74.6 Suntory 76.8 Average* 123.2 days food products

Cisco -77.9 Nokia -9.3 Motorola -5.9 Average* 17.7 days

NetApp -124.9 HP -46.7 Apple -38.9 Average* 77.2 days wireless c o m m u n i c at i o n

United 94.9 Qantas 101.2 Delta 107.6 Average* 187.8 days

Unilever 40 L’Oréal 46.3 Estée Lauder 65 Average* 56.0 days

c o m m u n i c at i o n s equipment

technology hardware & storage

Aetna -72.6 UnitedHealth Group -45.5 Anthem -43.6 Average* 35.6 days

personal products

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internet & direct marketing

Netflix -152.2 Expedia Inc -141.9 Priceline Group -13.7 Average* -69.4 days internet software & services

Ebay 0.9 Facebook 111.9 Alphabet 135.1 Average* 82.7 days software

T Mobile 152.9 SK Telecom 166 Softbank 171.3 Average* 208.4 days semiconductors

Qualcomm -14.4 Nvidia 48.6 Broadcom 81.5 Average* 170.7 days industrial c o n g lo m e r at e s

Samsung 28.9 Philips 31.1 Honeywell 54 Average* 176.4 days chemicals

Sherwin-Williams 41.5 Johnson Matthey 68.1 Umicore 68.2 Average* 227.8 days

Imagine that two companies in the same industry with very similar market focuses and financials generate a profit margin of 8%. But the first company makes that margin every 365 days compared to the second company’s cycle time of 183 days. Annually, that translates to 16 cents of cash for investors compared with eight cents of cash for the slower company. The more productive and efficient company wins financially. You can use the formula to measure your company’s cycle time. Take total invested capital and divide it by annual revenue. That tells you the percentage of the year that you are tying up capital. Then multiply by 365 to translate the metric into days. The result tells you how often, on average, it takes to turn invested capital into revenue.

Global productivity rankings GOLD

Danone 46.2 Mondelez 54.5 ADM 55.6 Average* 116.6 days

Next year

Vmware -171.6 Activision/Blizzard -83 Salesforce -73.4 Average* 75.5 days

A full list of winners is listed above. Well done to them all. These are companies that have recognized that productivity is the new profitability, and acted on it. It is the companies which can turn over their profits quickest that will succeed in this fast-moving world. Yet those that remain just outside the rankings have

SILVER BRONZE *Average cycle time for industry

a great deal to be optimistic about. Perhaps next year they will break into the medal places. It’s a fluid picture. Things can change quickly in 12 months. Good luck! — Joseph L Perfetti is an expert in corporate finance and strategy at the University of Maryland and Georgetown University. Michael Cichello is a teaching professor at Georgetown University

Download all the rankings and resources and view our exclusive webinar at www. dukece.com/ download-resultssupporting-resources/ Q4 2017 Dialogue

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Dialogue Q4 2017