Why Your Analysis of Working Capital Today Might Be Incorrect and What You Can Do About It

  • by Katharina Reichert, Finance Solutions, SAP SE
  • May 16, 2014
Learn two common calculation methods that are available for analyzing key aspects of working capital. You should then be able to choose which of the calculation methods most suits your analysis and configure SAP Working Capital Analytics to use that method to investigate the drivers of your working capital.
Learning Objectives

Reading this article you will learn how to:

  • Understand the differences in two common calculation methods that are available for analyzing key aspects of working capital
  • Set up SAP Working Capital Analytics for an indirect calculation of days sales outstanding (DSO) or days payables outstanding (DPO)
Key Concept

SAP Working Capital Analytics is an analytical tool included in the SAP HANA Live license that helps companies analyze the drivers of two key components of working capital – days sales outstanding (DSO) and days payables outstanding (DPO) – and how these change over time.

Finance departments have to manage working capital so that they can keep their business operations running and still be able to flexibly support the strategic goals of their business. Working capital management and optimization are key tasks of every finance department. They have to ensure that they can maintain production, cover the cost of wages and supplies, and have enough liquidity on hand to service their short-term credit obligations.

At the same time, the CEO might have plans to expand the business or start a new investment project, which might need additional capital. The finance department weighs the accounts receivables and inventory (short-term or current assets) with the accounts payables (short-term or current liabilities) to determine if there is enough working capital available to support the strategic investment with internal money, or whether there is a gap in financing. Any gaps are likely to be filled by external capital – usually at a higher cost than internally available funding. Being able to accurately measure and manage working capital, and avoid expensive external financing, can provide companies with a competitive advantage.

The in-memory data analysis capabilities of SAP HANA allow large volumes of business transactions to be considered for a direct analysis of the drivers of working capital. This is fundamentally different than the indirect approach, which relies on financial reporting aggregates. SAP Working Capital Analytics allows companies to take both approaches. I explain the concepts behind the calculation logic and the type of effort required to switch between the logic alternatives in the tool.

Katharina Reichert

Katharina Reichert is part of the Finance Solutions team at SAP SE, located in Walldorf, Germany. As the solution owner for receivables management, she focuses on applications for customer credit management, customer billing, dispute resolution, and collections management.

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2/26/2015 7:25:05 PM

Ignore 2nd point of my comment. I can see 2nd time its for DPO.
2/26/2015 7:20:35 PM

Good article.
1) I think for more detailed analysis DSO @ Customer level can be analyzed in Both Direct & Indirect method? Any comment on this?
2) It seems you copied
"To change to the indirect method (for DSO), complete these steps" and 3 points below that twice.

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