Balance sheet optimization

Unlock hidden cash in your balance sheet to fund strategy execution and invest in the future. Whether you’re looking for capital to support current operations, pay down debt or fund strategic initiatives, EY balance sheet optimization professionals can help you get there.

Related topics Strategy and Transactions Capital allocation Finance

The team

Brett M. Johnson

Brett M. Johnson

EY US Strategy and Transactions Real Estate Valuation Solutions Leader

Loren Garruto

Loren Garruto

EY Global Corporate Finance Leader

In times of rapid change and disruption, companies are often challenged to access the funding they need to stay flexible, get ahead of the competition and grow their business. Moreover, there is a constant push to improve return on invested capital (ROIC). 

Yet leaders may be overlooking a surprisingly rich source – cash trapped in working capital and physical assets that are either underperforming or no longer creating value. At the same time, a misaligned capital structure can lead to higher costs, suboptimal terms and more frequent transactions that siphon value.

How EY can help you uncover hidden value through balance sheet optimization

EY teams can help companies unlock cash by rightsizing their balance sheet to create sustainable value. Based on EY experience, examples of results include:

  • For every $1 billion in sales, the average working capital improvement is $50 million to $100 million.
  • Real estate restructuring and optimization can reduce total occupancy costs by 5% to 10%.
  • For each $1 billion of equipment costs optimized, companies can save $2 million to $4 million annually.
  • For every $500 million of financing raised, bank fees and interest rate savings can be realized up to $1 million to $4 million.

By applying field-tested methodology and leading practices, our balance sheet optimization services focus on these prime areas where capital gets trapped:

  • Freeing cash tied up in working capital

    EY analysis shows there is more than $1 trillion tied up in working capital at 2,000 of the largest global companies. Some of this capital can be freed up quickly to help fund current operations and strategic investments by fine-tuning accounts payable, while other measures can reap mid- and long-term improvements. Once implemented, working capital improvements can potentially create sustainable value through increased cash on hand – with results averaging 5% to 7% of annual revenue or 20% to 25% of net working capital, based on EY client experience.

    EY experience also shows that focused working capital improvements may include:

    Trade accounts payable

    Extended payment terms and enhanced invoice processing through adjustments in payment frequency and triggers can yield increased cash flow averaging 10% to 25% of accounts payable.

    Trade accounts receivable

    Standardizing credit terms, streamlining billing and invoicing, developing differentiated collection strategies and automating cash applications can yield a 10% to 25% decrease in cash tied up in accounts receivable.

    Inventory management

    Enhancing demand planning, sales and operations planning (S&OP), scheduling, raw material planning, inventory management, order management, finished good warehousing and logistics can achieve a 10% to 25% decrease in inventory on-hand.

    Non-trade

    Improving prepaid balances and deposits, accrued liabilities, payroll, indirect tax payments and other treasury relationships can decrease non-trade balances by 5% to 15%.

    Cash flow forecasting

    Leveraging the right tools to forecast cash flow and establishing a cash leadership office can deliver better visibility and control over cash flow as well as a strategic focus on cash management.

  • Applying cost management strategies to corporate real estate (CRE)

    EY analysis of real property data and client projects indicates that up to 1% of a company’s property, plant and equipment (PP&E) balance – or 20% of land – is ripe for immediate monetization, while real estate restructuring can deliver a 6% to 10% internal rate of return (IRR). EY teams deploy big data and proven processes to help you identify cash opportunities fast. Here’s how:

    Excess property

    A history of M&A activity often results in excess and underutilized real estate that’s costly to maintain and delivers minimal value to the business. EY advisors help companies to quickly identify and dispose of excess property, as well as downsize non-strategic assets via sale leaseback and lease renegotiation.

    Real estate restructuring

    Companies that plan to stay in a location for more seven years may consider direct ownership or a synthetic lease to drive value and enhance shareholder returns.

    Occupancy cost reduction

    Decentralized CRE structures can often lead to inefficiencies, an underutilization of assets and a lack of effective benchmarking. Based on EY experience, companies can reduce annual occupancy costs by 5% to 10% by optimizing their real estate footprint and adopting flexible strategies to better adapt to future workplace needs.

  • Purging “ghost assets” from the fixed asset ledger

    An internal study and EY experience indicate that 15% to 30% of the data on fixed asset ledgers is incorrect, mainly due to unrecorded retirements – resulting in $2m to $4m in potential annual savings for each $1b of capitalized cost basis. The EY capital equipment team helps companies manage operating expenses and improve cash flows by focusing on these areas:

    Eliminating costs related to “ghost assets”

    By deploying data analytics to the fixed asset ledger, leased asset portfolio and fleet and transportation assets down to the store and branch level, EY professionals can help identify “ghost assets” that are no longer in service or in use. Then our team helps companies make sure the fixed asset information is corrected within accounting and tax records to deliver immediate cost reductions through tax and insurance savings.

    Driving higher capital asset return

    Analyzing and optimizing asset decommissioning and rationalization strategies can add value, as well as assist with planning and P&L impacts – potentially reducing operational costs by 5% to 15%, based on EY experience.

    Manage maintenance costs

    By applying better oversight and asset monitoring practices, companies can reduce maintenance costs by 10%–15%, based on EY experience.

  • Rebalancing capital structure to cut financing costs

    An unbiased, thorough review of a company’s strategy, operations, marketplace and stakeholders can help improve the design and execution of an effective capital structure. As independent capital markets advisors on more than $80 billion in debt and equity capital, EY teams advise companies on how to manage costs and improve terms in their financing transactions. EY teams deliver comprehensive advice on capital structure strategy, execution and terms throughout the financing process:

    Assessing capital structure strategy

    Proactively evaluating how the needs and characteristics of a business match up with available capital markets, capital instruments and capital providers effectively supports operations and strategic objectives. For example, covenant-lite capital structures put in place before the pandemic allowed many businesses ample operating flexibility, so they didn’t require any covenant modifications or costly amendments.

    Improving economics and financing terms

    A competitive financing process can help reduce underwriter and arranger fees, while an independent instrument and pricing perspective can potentially lead to lower interest rates.

Take the next step to access more cash today and lower costs tomorrow

Contact our EY Corporate Finance team to find out how your company can improve cash flow through balance sheet optimization.

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