A new report from Lloyds Bank Commercial Banking reveals that companies across the North of England have at least £59.6bn tied up in excess working capital. Tony McDonough reports
Merseyside firms have too much money stored up in working capital and stock which could hamper their efforts to invest or reduce debt.
A new report from Lloyds Bank Commercial Banking reveals that companies across the North of England have at least £59.6bn tied up in excess working capital.
Working capital is the amount of money that a company needs to cover the day-to-day costs of running the business.
The more money tied up in working capital, the less available for investment or reducing debt.
By tying up more cash in working capital, particularly stock, Merseyside businesses could be missing out on a “cash mountain” and could be left exposed if economic conditions deteriorate and they are left holding too much stock, Lloyds claims.
Andrew Charnley, Lloyds Bank Global Transaction Banking in the North, said: “Working capital is the lifeblood of any business, and our research shows that British businesses have huge amounts of money tied up in it.
“This cash mountain suggests that companies are either feeling more positive about the future or that they are reducing their focus on this critical area of business performance.”
The Lloyds Bank Working Capital Index is a new six-monthly index launched this week that uses the Lloyds Bank Regional Purchasing Managers’ Index (PMI) data to calculate the pressure businesses are under to either increase or decrease working capital.
A reading of more than 100 indicates pressure to devote more cash to working capital while a reading of less than 100 indicates pressure to prioritise liquidity.
The current reading of 105.9 indicates that North West firms are putting more cash into their working capital, even though economic indicators warn of possible storms to come.
Mr Charnley added: “By understanding the hurdles they face and how their working capital levels compare with industry norms, British businesses can use this insight to unlock the cash trapped within their business, become more efficient and realise their full potential.”