How would you quantify and present the cash that a working-capital improvement program would release?
A core FP&A interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Translate the operating metrics into cash. For each working-capital line, the cash released from a days improvement is: (days reduction ÷ 365) × the relevant annual flow — receivables use revenue (lower DSO releases cash), inventory uses COGS (lower DIO releases cash), payables use COGS/purchases (higher DPO releases cash, but watch supplier relationships). Sum the three for the total one-off cash release, and distinguish that one-time balance-sheet release from any ongoing P&L benefit (e.g., lower financing cost on the freed cash). I'd benchmark current DSO/DPO/DIO against peers/best-practice to set realistic targets, phase the release over time (it doesn't all land at once), and flag risks — over-tightening receivables can cost sales, stretching payables can sour suppliers, cutting inventory can cause stock-outs. Present it as: target days by line, cash released per line and total, the realistic timeline, and the trade-offs — so management sees a credible, risk-aware number, not a theoretical maximum.
WHAT INTERVIEWERS LISTEN FOR
- ✓Cash released = (Δdays/365) × relevant flow (revenue for AR, COGS for inventory/AP)
- ✓Sum AR/inventory/AP for one-off release; separate from ongoing P&L benefit
- ✓Benchmark days, set realistic targets, phase the release
- ✓Flag trade-offs: lost sales, supplier strain, stock-outs
COMMON MISTAKES
- ✗Quoting a theoretical max with no phasing/risk
- ✗Wrong flow base (revenue vs COGS) per line
- ✗Ignoring operational trade-offs
Reading isn't the same as answering under pressure.
Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS
- Explain contribution margin and how you use it.
- What is the most important KPI for a SaaS business and why?
- What are the most important KPIs for a SaaS business and why?
- How would you evaluate the effectiveness of a company's management-reporting process, and what would you improve?
- What is the difference between a metric and a KPI, and how would you develop a set of KPIs to measure a company's performance?
- What are the key considerations when developing a dashboard to track a company's key performance indicators, and how would you ensure that the dashboard is effective and easy to use?