C-Suite. If you found out that 15% of company assets are not optimized, what would you do?
- webmaster8342
- 4 days ago
- 2 min read
Who should be accountable if company assets are not being optimized?
You could bring in the fancy blue chip consulting firm or plan the next round of retrenchments. Or, the less dramatic route is the low-cost option staring you right in the face. Let me explain.
According to NYU Stern Cash Holdings by Sector research, organizations have between 10-20% of company assets in cash. And here is the rub. Most CXX executives are honed in on optimizing every part of the business and delivering growth, but somehow omit cash as an asset class as part of what must be optimized. Why is that?
Historically, the process has been too manual and time-consuming; therefore, many managers overlook or dismiss the 0.4% to 2% benefit in that light. So, let's do the math. On average, with cash of say $50m, one could achieve an extra, $750,000 income. That seems worth the effort.
The majority of organizations are not proactive in seeking the best yield returns and getting their banking counterparties to sharpen their pencils. Instead, an almost laissez-faire environment exists, and the best return on corporate cash barely gets a mention in board or exco meetings. This simply is not good enough!
If an additional 1% yield can be extracted from 15% of your balance sheet, that's not just good practice, it's revenue. But what surprises most people is that this measure can be implemented with simplicity, at low cost, and quickly. Add in automation, risk, and compliance, and suddenly an organization can get a big bang for its bucks. ROI is achievable in under 6 months!
How does your company measure? Ask why your company's assets are not being optimized.
According to the NYU Stern data, the following industries have cash-to-asset ratios more than 10%, with some very surprising common-sense sectors such as Retail and Education but also surprises from Shoe sector, for example.
Industry name | Number of firms | Cash (US $ millions) | Cash/Firm Value | Cash/Revenues | Cash/Total Assets |
Shoe | 12 | $11,129.51 | 6.11% | 15.63% | 18.95% |
Semiconductor Equip | 30 | $21,795.40 | 5.11% | 27.29% | 18.63% |
Apparel | 37 | $11,679.13 | 10.86% | 17.22% | 15.48% |
Retail (Grocery and Food) | 17 | $16,290.45 | 10.74% | 5.95% | 14.33% |
Coal & Related Energy | 16 | $1,796.32 | 12.87% | 23.15% | 14.21% |
Electronics (Consumer & Office) | 11 | $333.72 | 12.32% | 10.18% | 13.88% |
Education | 29 | $4,284.48 | 6.95% | 18.6% | 13.46% |
Drugs (Biotechnology) | 535 | $72,881.14 | 5.07% | 36.27% | 12.91% |
Real Estate (Operations & Services) | 60 | $10,648.28 | 7.08% | 11.66% | 11.33% |
Hotel/Gaming | 65 | $50,571.55 | 5.17% | 23.35% | 11.17% |
Advertising | 54 | $8,265.72 | 6.56% | 19.33% | 11.1% |
Homebuilding | 30 | $19,578.06 | 8.31% | 11.27% | 10.92% |
Electronics (General) | 122 | $22,256.02 | 5.57% | 14.48% | 10.9% |
Telecom. Equipment | 61 | $23,270.49 | 3.83% | 21.85% | 10.65% |
Software (Internet) | 29 | $6,743.24 | 2.88% | 22.49% | 10.63% |
Software (Entertainment) | 81 | $75,788.19 | 1.88% | 14.11% | 10.06% |
Extracted from NYU Stern Cash Holdings by Sector (https://pages.stern.nyu.edu/adamodar/New_Home_Page/datafile/cash.html)
As a C-Suite executive, you have a responsibility to all stakeholders to ensure all cylinders are firing, and that includes cash optimization.
As non-executive directors, you must ask the questions.
So, repeat after us. It's Cash Optimization time.
Isn't cash optimization part of the C-Suite's responsibility?