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14.10.2008

Integrated Corporate Finance:
Bank Austria introduces WorkingCapitalCheck for companies

  • Every fourth company only checks liquidity on an event-driven basis or not at all
  • Active liquidity management can help prevent financial crises and improve creditworthiness
  • Insufficient cash reserves also threaten the existence of "healthy" companies
  • New advisory tool helps prevent imminent liquidity shortages

As part of its Integrated Corporate Finance approach to advising, Bank Austria is introducing a new innovative service for corporate clients that is available starting immediately: The WorkingCapitalCheck is free of charge and serves as a review of the liquidity situation of companies with an annual turnover of EUR 3 million to EUR 250 million. "Although insolvency can rapidly lead to the financial demise of companies that are considered to be 'healthy', many companies do not have a current overview of their liquid resources," says Martin Frank, head of Bank Austria's Corporates & Public Sector, adding, "A new survey commissioned by Bank Austria shows that every fourth company only checks its liquidity on an event-driven basis or not at all." At the same time, liquidity shortages are the number one cause of financial difficulties among companies according to KSV.

Economic downturn as cause for a liquidity test
International conditions, such as the weak US dollar, high commodity prices and the global economic downturn resulting from the US mortgage crisis, are increasingly putting pressure on Austria's economy as well. The highly export-oriented industrial sector could even be facing a recession. Bank Austria's most recent EinkaufsManagerIndex came in below the growth threshold of 50 points for the fifth consecutive month with a seasonally adjusted level of 48.6 points. Production is being scaled back and jobs are being cut in the export-oriented industrial sector.

In addition to high inflation, which is curbing consumption, international economic conditions continue to limit domestic economic prospects. The vague hope that the European economy would be able to separate itself from the declining US economy has vanished into thin air in light of the most recent economic data for some countries (e.g. Germany) and Austria's economy is on the verge of stagnation. "Our economists expect Austria to reach its economic low point around the turn of the year 2008/2009. In my opinion, now is the right time for business owners and managers to take a critical look at the liquidity of their companies," says Frank. Because active liquidity management protects companies against financial crises and improves creditworthiness vis-à-vis suppliers, business partners and banks, thus supporting companies' growth objectives.

Survey: Every fourth company only checks liquidity on an event-driven basis or not at all
According to a new survey conducted by the market research institute Gfk on behalf of Bank Austria, 93 per cent of all Austrian companies with an annual turnover of more than EUR 3 million consider liquidity to be an important or very important issue. However, only three out of four companies regularly check their cash reserves. "Most companies use 'cash flow' as a measure of liquidity. Using 'working capital' as a measurement, on the other hand, is a relatively unknown method," points out Martin Mayr, deputy head of Bank Austria Market Research.

In addition, many companies do not take at least one of the three operating figures of debtor days, creditor days and inventory days into consideration when determining cash flow. This is a strong indication that liquidity management is inadequate at many companies.

According to the Bank Austria survey, seven out of ten companies ensure liquidity using their cash flow, while six out of ten companies are liquid thanks to open lines of credit. "I am surprised that so many business owners and managers think of their available lines of credit first when it comes to liquidity. Many people are not aware of the fact that capital is sometimes unnecessarily tied up through high inventory levels and the inefficient management of receivables," says Martin Frank, head of Corporates, offering an analysis of the situation.

A total of 68 per cent of the companies surveyed reinvest long-term surpluses in their own companies. Surpluses are used for financial investments by 16 per cent of the companies. An additional 16 per cent said that they do not have long-term liquidity or did not provide any detailed information. According to market researcher Martin Mayr, the companies primarily expect high-quality advice from banks regarding questions of liquidity.

RatingBeratung, PlanungsWorkshop, BusinessPlanner and WorkingCapitalCheck
The WorkingCapitalCheck is the result of an exchange of best practices within UniCredit Group and builds upon the established RatingSzenarioRechner. Alongside RatingBeratung, PlanungsWorkshop and BusinessPlanner, it is the fourth advisory tool in Bank Austria's Integrated Corporate Finance service portfolio.

The free WorkingCapitalCheck is a multi-step advisory service. In the first step of the process, the company's liquidity situation is presented. The working capital – the receivables, payables and inventories – is analysed on the basis of the balance sheet ratios. Then, the company's liquidity potentials are highlighted and possible scenarios are run through with a demonstration of their effects on the most important ratios. Finally, the Bank Austria customer representative presents instruments for optimising liquidity that provide support in the management of receivables and payables. Solutions for improving liquidity and profitability are then developed together with the company.


Enquiries: Bank Austria Press Office Austria
 Tiemon Kiesenhofer, Tel.: +43 (0)5 05 05 ext. 52819;
 E-mail: tiemon.kiesenhofer@unicreditgroup.at

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