JP Morgan’s comprehensive 2024 working capital analysis reveals substantial $707B opportunity for strategic business optimization and enhanced financial performance through improved working capital management practices.

In 2023, S&P 1500 companies reported record-high working capital levels, driven largely by excessive inventory and longer receivable cycles across most industries. This surge has locked up an astonishing $707 billion in liquidity—up 40% from pre-pandemic levels—raising concerns about capital efficiency and cash flow management.

With interest rates still elevated and supply chain uncertainties mounting, businesses must rethink their working capital strategies to maintain financial flexibility and fuel growth. 

The Rising Working Capital Index: What’s Behind the Shift?

The J.P. Morgan Working Capital Index surged by 7.3 points in 2023, nearing its pandemic-era peak. This increase was fueled by extended inventory and receivables cycles, a direct result of shifting demand-supply dynamics and prolonged supply chain lead times.

While supply chain disruptions eased in 2023, they are re-emerging in 2024 due to:

1. Geopolitical tensions – Red Sea conflicts, Panama Canal droughts
2. Reshoring and localization of supply chains – Shifting supplier bases
3. Global election uncertainties – 77 countries going to the polls
4. Rising sustainability and ESG pressures – Stricter regulations
5. Surging AI investments – Expanding capital expenditures in tech

With these factors at play, companies must optimize working capital now to navigate a potentially volatile financial landscape.

Cash Reserves at Historic Lows Amid High Capital Expenditures

While working capital remains locked up, corporate cash reserves continue to shrink. In 2023, 64% of companies reported an increase in capital expenditures, investing heavily in:

1. AI & cloud infrastructure – Led by tech giants, with $140 billion in hyperscale cloud investments
2. Renewable energy & utilities – Driven by government incentives and net-zero commitments
3. Supply chain resilience – As firms diversify suppliers and relocate production

With higher interest rates and geopolitical risks threatening liquidity, companies must treat cash as a shared strategic asset—optimizing its allocation and access to fuel long-term growth.

Cash Conversion Cycle (CCC) Increases: Who’s Winning and Who’s Struggling?

The Cash Conversion Cycle (CCC)—a key metric measuring how efficiently companies turn working capital into cash—increased by 2.4 days in 2023. This was due to:

1. Days Sales Outstanding (DSO) up 1.4 days – Longer payment cycles from customers
2. Days Inventory Outstanding (DIO) up 3.7 days – Cautious inventory buildup
3. Days Payable Outstanding (DPO) up 2.7 days – Companies extending supplier payments

Top Movers in CCC (Industry-wise trend):

1. Semiconductors – +27.9 days (excess inventory, falling demand)
2. Oil & Gas Upstream – +8.1 days (higher DSO amid increased U.S. production)
3. Technology Software – +7.3 days (extended payment terms)
4. Pharmaceuticals – +7.3 days (normalizing demand post-pandemic)

Sector Deep Dive: What’s Driving CCC Changes?

• Semiconductors & Pharmaceuticals: Overproduction and supply chain shifts have left excess inventory stranded.
• Oil & Gas: As U.S. production rises, companies face longer payment cycles from buyers.
• Automotive: DPO continues to improve, thanks to widespread adoption of supply chain finance programs.

For companies operating in these sectors, inventory optimization and smarter payment terms will be key to unlocking cash flow in 2024.

The $707B Opportunity: Unlocking Trapped Working Capital

If companies improved their working capital performance by just one quartile, an estimated $707 billion could be unlocked as free cash flow—a significant jump from $633 billion in 2022.

Biggest Opportunities for Cash Release:

1. Inventory (DIO): $353 billion – Excess stock management
2. Receivables (DSO): $223 billion – Faster collections
3. Payables (DPO): $130 billion – Optimized supplier payments

With supply chains normalizing post-pandemic, businesses must prioritize smarter working capital strategies—not just to improve liquidity, but to fund innovation and shareholder returns.

How Companies Can Optimize Working Capital in 2024

Given the uncertain macroeconomic environment, proactive working capital management is no longer optional—it’s essential. Here’s how companies can release trapped cash and improve financial resilience:

1. Benchmark Against Peers – Compare DSO, DPO, and DIO to industry leaders.
2. Optimize Payment Terms – Negotiate better supplier credit terms while maintaining strong partnerships.
3. Leverage Supply Chain Finance – Extend DPO without disrupting supplier liquidity.
4. Adopt AI-Driven Cash Flow Forecasting – Predict cash needs with greater accuracy.
5. Align Finance, Procurement & Operations – Break down silos and ensure enterprise-wide cash visibility.
6. Embed ESG & DEI Considerations – Factor sustainability into capital allocation decisions.

The Bottom Line: Act Now or Risk Financial Strain

With interest rates high and supply chain uncertainties growing, companies must act now to optimize working capital. By doing so, they can unlock trapped liquidity, enhance financial agility, and fuel long-term growth—even in an unpredictable market.

J.P. Morgan continues to provide data-driven insights and financial solutions to help businesses manage working capital more efficiently. Through customized strategies, industry benchmarking, and capital solutions, we empower CFOs and treasurers to turn working capital into a strategic advantage.

Source links:

1. JP Morgan: Increasing efficiency: Working Capital Index 2024 (link)