Working capital is something no industry can do without at some point or the other.
A primary measure of the Working Capital is Working Capital per revenue, defined as the measure of working capital required to generate one unit of sales.
Electronics and electrical component manufacturing firms show themselves to be in the top 100 users of working capital for the past decade consistently. These industries alone account for close to 5% of working capital users in the US.
They also show favorable ROI almost across the board and on average required <20% of Working capital per sales unit, as calculated by NYU Stern as of January 2018, (343 firms out of 7247 surveyed across all industries).
But it’s requirement and effects are probably best demonstrated in the electronics and electrical components industries for the following reasons:
Endless Applications and Users
Take a look around your living room, office or even your car.
Almost anything you see from your lights and wireless routers to your TV and computers is made out of hundreds of individual components. On a larger scale, these can have up to thousands of electrical components, from aim-assist and target acquisition on a tank to geological cameras and horizon scaling imaging devices on weather satellites.
We often only see this larger picture since the constituent elements are so varied and complex in their own right.
Vast Inventory Catalogue
Everything from solenoids to start cars, a circuit board for a transformer to RAM chips for your computer are likely to be manufactured, imported and sold by local and major electrical concerns in varying amounts.
Where the complication arises is – these aren’t always on an order-basis, that is, they need to maintain minimum stocks of these at all times. Otherwise, they risk ending up with the unsold inventory at the end of the lifetime of the product – especially in an industry so fast-moving.
PWC has also attributed the noticeable increase in Net Working Capital (NWC) in the electronics sector (the first since the 2008 market crisis) to these same industry conditions as per a 2015 report.
Lucrative Options For Small To Mid-Tier Firms
With a varied catalog of services ranging from flexible tenure and repayment options to EMI-based loans, working capital loans ensure that even a small to medium-sized business can maintain essential inventory while continuing to innovate in this rapidly-evolving, competitive industry.
With firms like Flexiloans and ICICI offering benefits like low one-time processing fees and zero collateral options, emerging companies, and established concerns are further incentivized to pursue a working capital loan from such institutions.
As per David Clayton of BlueVine Capital Inc., Working Capital is absolutely essential to growth for new firms of firms in the small to mid-tier, especially if they are going up against much larger, established concerns.
Studies show that instead of making better phones that last longer, the industry is edging towards revolutionary new products that consumers, casual or “techie,” upgrade almost annually.
This could range from your smartphone and wearables to even your laptop – updated on average, every 3-5 years in the US for even casual users.
Smartphones see annual updates amongst large segments of their user base, the best example of them being Apple’s iPhones. As per a PEW research poll, 96 percent of American adults lacking broadband at home are still smartphone users, showing proving the market is continuing to skyrocket despite lacking infrastructure for broadband and wireless.
Great Option For Component Manufacturers
Another good example is the specialized materials and cabling infrastructure in the new routers you’ll need to support high internet speeds. These can go over 1 GB/second and are making their way into developing markets as well.
With revolutionary new technology from the advent of fingerprint sensor-unlock to Apple’s new FaceID, manufacturers constantly have to update their stocks of components and materials.
Specialized Raw Materials and Parts
Speaking of Apple, did you know that your average iPhone contains fractions of a gram each of palladium, silver, and platinum? This isn’t even taking into account the sapphire crystals on its cameras (the newer models have two lenses at that, so double the sapphire).
Balancing efficient inventory (all/mostly sold before becoming outdated or downright obsolete) and efficient supply chains is difficult. Especially in the electronics industry with such specific and often expensive parts that can be hard to source.
This is one of the primary reasons electronics and electrical companies are ideal candidates to apply for working capital loans.
Especially since constantly updating inventory, maintaining spares and older parts for repairs and managing a company of any scale – particularly start-ups, can be expensive.
More importantly, the need for capital is often more specific and inconsistent than say, construction or legal firms, where financing requirements are usually more predictable.
LSI Keywords used: Working Capital, electronics and electrical companies, revolutionary new technology, Specialized Raw Materials and Parts