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Cuts In Working Capital Help The U.S. Capital Goods Sector Offset Economic Downturns Aug 11 Product Image

Cuts In Working Capital Help The U.S. Capital Goods Sector Offset Economic Downturns Aug 11

  • ID: 2086749
  • August 2011
  • Region: United States
  • Standard & Poors

FEATURED COMPANIES

  • AGCO Corp.
  • Cooper Industries PLC
  • Eaton Corp.
  • Illinois Tool Works Inc.
  • Park-Ohio Industries Inc.
  • Thomas & Betts Corp.
  • MORE

Abstract
The cyclical nature of capital goods companies can translate into significantly weaker earnings and credit measures in a recession. A mitigating factor that Standard & Poor's Ratings Services has typically observed is the release of working capital as cash inflows from inventory and accounts receivable more than offset cash outflows related to shrinking accounts payable for most of our rated entities. We observed that at the height of the industrial economy's downturn in 2009, most U.S. capital goods companies significantly reduced nominal working capital, which significantly increased their cash flows. In fact, the change accounted for, on average, about 25% of total operating cash flow in that year for the companies we analyzed. In 2010, issuers returned working capital to...

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Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.

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Note: Product cover images may vary from those shown
Note: Product cover images may vary from those shown

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