Rightsizing working capital for a home fashion group
What they asked
Our client, a Private Equity investor (PE), was considering the acquisition of a retailer of home fashion products. The retailer has over 100 stores across the Benelux and forms part of a larger retailer group. The PE investor asked us to assist them in investigating 3 matters. Firstly, whether the existing working capital level supported the operations and growth of the company. Secondly, whether there was any upside potential or downside risk in the working capital. And finally, whether the value of inventories was accurately reflected on the balance sheet.
What we did
We calculated the minimum viable inventory using an SKU level inventory model. We compared the inventory against point-of-sales data to validate its currency and value. We drew up a detailed validation of both past and future trade payables versus purchase orders. We validated the management business plan and assumptions on future working capital.
What we accomplished
We established a sustainable working capital level that supports future growth and compared this against management plans. Furthermore, we quantified the risks in each working capital component: inventories, payables and receivables. And validated the book value of inventories. Finally, we identified opportunities for structurally reducing inventory levels.