Let's look at the matrix in more detail:

[sadiksojib35]

Thus, our matrix becomes a little more complicated, becomes three-dimensional. But we will simply separate the goods for which we work not with our own money into a separate block - "investor goods"


It turns out that all our products are divided into 6 categories depending on their sales volumes, profitability and use of their own/other people's capital. It is easy for managers to compare products with each other, and we can also give the manager recommendations for each product category - what he should do.

" A good investor ". We work on other people's money egypt whatsapp phone number with high profitability. That is, we not only borrow money from the supplier, but also earn money on it. The manager's task: firstly, not to spoil anything (for example, not to significantly worsen the turnover rate of inventory). Secondly, to try to squeeze the maximum out of these goods. They can be purchased with some reserve, since here the risk of losses from lost sales due to a shortage of goods is much more significant than the risk of freezing capital in illiquid assets.
" Bad investor ". We work with other people's money, but the return on capital is below average. We do not use our own capital, but we do not use the supplier's capital very effectively either. The manager's task is either to raise the ROWC by increasing the average markup, or to speed up the inventory turnover, or to negotiate an extended deferment with the supplier. At the same time, even a "bad" investor still remains an investor. Even if we cannot improve the situation with sales margins, it is not scary. In any case, we at least get a loan from the supplier and can use this money to fuel our "profit generators".
" Profit generator ". We invest our money, but get a good return on it. The return on capital is above average and we sell a lot. It is worth working with the supplier to improve the terms of deferment and/or more carefully manage inventory, not allowing overstocks. In this case, the "profit generator" can become a "good investor".
" Promising ". We invest our money, have a good return on capital, but sell little. If there is no understanding of how to increase sales without losing profitability, these products can be neglected.
" Capital devourer ". We invest our money, sell a lot, but the return on capital (ROWC) is low. This is an unpleasant category of goods. We are forced to spend resources to support a low-profit business. At the same time, due to large sales volumes, "capital devourers" can provide a decent profit in absolute figures or occupy a large market share in the category. That is, we cannot simply abandon these goods. The manager's task is to analyze the reasons for the product falling into this category and strive to improve inventory turnover and accounts payable in order to drag the product into the "profit generator" or "bad investor" category.
" Garbage ". This includes products with low profitability and small sales volume, regardless of whose money we are working on them with. If we do not see prospects for a significant increase in sales volume, it is usually better to get rid of these products. They only distract managers and create problems with illiquid assets, defects, and returns. A lot of human resources are spent on them with a minimum of real return.
As mentioned above, we can apply this approach to ranking elements to various entities. To individual products, categories, suppliers, sales channels, comparing them with each other, setting target indicators and giving managers a clear methodology of “where to look” and what can be improved.

The working capital return matrix has become one of the important tools for our company, helping to use capital as efficiently as possible and maintain average annual growth rates of x2 for five years now.



Embedding such a "working capital return calculator" into the company's accounting system (or at least Excel) allows managers to "play" with the indicators. Model various scenarios: "I can't increase the markup on this product, there is strong pressure from competitors on price. It will not be possible to get an additional deferment from this supplier in the next three months either. But you can work on inventory turnover, if you improve it by 5 days, then the product will go from being a "capital eater" to a "profit generator".

The constant and systematic use of such a matrix allows for an increase in return on capital, and therefore ensures rapid growth of the company.