The 2024 Financial Cycle Time Champions show the benefits of speed for a business’s cashflow.
Economists view “worker productivity” as a key driver of economic performance. It represents the total output of the economy divided by hours worked. High worker productivity means doing more with less – allowing the economy to grow without pushing up inflation. And in an era where new technologies offer unprecedented capabilities, opportunities abound for leaders to transform productivity in their businesses.
Mark Benioff, chief executive at Salesforce, has highlighted the transformative role of artificial intelligence in enhancing productivity. Writing in the Wall Street Journal, Benioff suggested he might be among the last generation of CEOs managing an exclusively human workforce. Going forward, the CEO will be managing a blended workforce that includes AI.
Already, Salesforce has implemented AI agents to assist their 9,000 customer service representatives, resulting in remarkable efficiencies. Within three months, these AI agents independently handled 84% of customer service requests, escalating only 2% to human representatives. This shift has enabled Salesforce to reallocate 2,000 representatives to other strategic roles.
The Salesforce example underscores the power of integrated technology to achieve operational efficiency. It is the type of shift that is increasingly imperative for leaders to keep pace with their competitors. In a fast-moving world, speed is of the essence. At Duke Corporate Education, we have come up with an algorithm to try and measure the financial cycle time (FCT) – or speed – of a firm. This provides data to leaders and investors on how companies are doing year over year, and offers them a benchmark against similar peers. This year, our annual FCT Awards honor outstanding performers from the S&P 500 and Stoxx 600, based on 2024 data.
The elements of financial cycle time
Have you ever wondered why profitable firms borrow money? Senior leaders often point to reasons such as paying dividends, acquiring another company, or funding a major project. But these reasons represent discretionary choices. The deeper question is: why would a profitable company need to borrow money?
The answer is simple: time. If time didn’t exist, profitable companies would never need external financing. However, in reality, companies must bridge the gap between when they spend money and when they receive it back. This interval is precisely what FCT measures.
FCT captures a company’s efficiency by measuring how long, on average, its cash is tied up between initial investment and the point at which cash is collected from sales. The shorter the cycle, the better a company can utilize its capital, indicating robust financial agility and operational excellence. Consider a typical business cycle.Companies initiate product development through research and development (R&D), manufacture products in their facilities (PP&E), maintain inventory, sell products, and then wait 30–60
days for customer payments, creating accounts receivable.
Although partially offset by delaying payments to suppliers, a timing gap remains, necessitating financing. Banks and other financial institutions provide funding to bridge this gap, charging for the privilege. Thus, the longer this gap, the greater the need for cash; conversely, the shorter the gap, the less financing is required.
Why speed matters
FCT is important because it is fundamentally about operational and strategic capabilities, extending beyond asset utilization to include the critical element of decision-making speed. Faster decisions accelerate product development, reduce the time it takes to reach customers, and hasten cash inflows. Conversely, slow decision-making ties up cash, as teams working on extended projects incur ongoing costs without immediate reimbursement.
As Figure 1 (above) shows, a related measure, production cycle time (PCT) measures the period between initial investment in working capital and production equipment to actual product sales. FCT goes further, encompassing the full duration of the period from initial operational investment – including all relevant operating assets and liabilities – until cash is collected from the customer. If a company were to undertake an acquisition, the time to earn that cash back is also included in FCT.
The wet sponge
Improving a company’s financial cycle time is akin to squeezing a wet sponge, releasing money. Consider a balance sheet from a different perspective: the cash a business has tied up is equivalent to the amount it borrows daily, multiplied by the number of days that cash is tied up. This represents the total investment in a business.
Take ASML, our gold winner in semiconductors in Europe, as an example. In 2024, ASML tied up cash for 139 days, with each day representing
€77 million of borrowed money. This resulted in total investment and financing of approximately €10.7 billion. If ASML’s cycle time was just five days longer, it would need to borrow an additional €387 million (€77 million x 5 days).
Apple’s competitive advantage
Apple’s competitive advantage is built on its exceptional supply chain management and fast decision-making. Its close relationship with Foxconn has reduced both manufacturing costs and inventory risk.
By maintaining a lean inventory of about five days’ worth of product globally, and shifting inventory risk to Foxconn, Apple can rapidly scale production up or down based on demand, getting products to customers faster. Quick decision-making further boosts Apple’s agility, allowing it to respond rapidly to consumer needs.
In a previous article, we developed a capability model that analyzes the capabilities of a company across six elements. (See ‘The competitive advantage of capabilities,’ Dialogue Q3 2023.) Applying the model highlights why Apple excels.
Assets Minimal direct asset investment is required thanks to strategic partnerships with Foxconn and chip-designer Arm
Knowledge Mastery in market insights and predictive analytics drives inventory optimization
Technology Advanced inventory management systems enable minimal inventory and accurate forecasting
People Expert supply chain management and rapid decision-making capabilities are cultivated, internally and through partners
Process Streamlined, agile processes ensure rapid product development and market responsiveness
Culture The company has built and maintained a culture focused on innovation, efficiency, and swift decision-making.
There are other exceptional performers among this year’s winners.
1. John Deere (S&P 500). Gold Winner, machinery
Deere again takes Gold in the machinery category. The company has optimized inventory and supply chain processes by leveraging advanced precision agriculture technologies and predictive maintenance systems, reducing cash tied up in inventory and accelerating decision-making, thus improving financial flexibility.
2. Safran (Stoxx 600). Silver Winner, aerospace and defense
Real-time inventory management and streamlined payment processes enabled rapid decision-making, resulting in an impressive negative 45-day cash cycle and freeing about €76 million daily.
3. Tesla (S&P 500). Gold Winner, automotive
Tesla’s vertically integrated manufacturing, streamlined production processes, and rapid decision-making facilitated by real-time analytics enable the company to minimize inventory and respond swiftly to customer demand, maintaining exceptional financial agility.
Note that a negative cycle time can be achieved through either prepayments from a customer (a model utilized effectively by companies such as Netflix), or by slowing down payments to suppliers and holding onto cash longer. Clearly, FCT should not be improved by sacrificing safety or quality.
Leading with speed
The FCT Awards continue to highlight companies that demonstrate exceptional financial and strategic agility in their industries. These companies outperform their peers by achieving faster operations, optimizing cash flow, and generating superior returns for investors.
