Capital Rationalization

How can a capital rationalization initiative add value to your company?

A company’s profitability can be measured by Return On Capital Employed (ROCE), which is a ratio that measures how efficiently it’s capital is used. A higher ROCE indicates more efficient use of capital. By initiating a capital rationalization project, the need of capital is reduced for the company and the released tied-up capital can be used to increase profitability by lowering interest bearing liabilities or be used for investments in the business. In both cases the value of the company is increased. Working on the productivity of capital is the easiest and usually quickest way to improve the profitability of a business and the one with the greatest impact.

A capital rationalization initiative can be performed by reviewing a number of issues, for example:

  • Inventory levels – Do we have the right products in the necessary quantities to provide our customers with good service and our owner’s with efficient use of the capital invested in the company?
  • Purchasing – Do we base purchase on relevant information?
  • Payment terms – Do you have the right payment terms with our suppliers?
  • Manufacturing – Should we make or by? Can we shorten lead time in production?
  • Assets – Do we need to own all our current assets to have a competitive advantage?
  • Logistics network – Can we improve our supply chain and/or change our delivery terms?

What value does Montell & Partners add to your capital rationalization work?

Montell & Partners have extensive experience managing capital rationalization projects in several different industries. We have helped clients all over the world and offer a flexible approach where we strive towards a close cooperation for the best possible result.

Our support is offered in joint teams and is always tailored for your specific organization and situation. We focus on creating sustainable value and can support your organization by:

  • Asking the necessary questions until the answer is clear and based on facts:
    • Where do we tie up capital, and how much?
    • Why do we tie up the capital?
    • What can we do about it?
    • How can we measure the progress?
  • Identifying short term actions to instantly free capital in the operation
  • Identifying and implementing improvements to reach long term efficiency in the organization
  • Supporting you in the implementation and follow up of the needed changes and new processes for an effective and efficient organization
  • Educating the employees in capital rationalization methods and analyses for a long-term knowledge transfer