Credit and Inventory Management

By mid-2000, Gillette's stock price was down almost 50 percent from its high the previous year. One reason given by market analysts was poor management of inventories and credit. Receivables had reached the equivalent of 106 days of sales, while competing companies such as Colgate and Procter & Gamble had 65 and 29 days' sales outstanding. The issue became so serious that the CEO of Gillette, Michael Hawley, made working capital reduction a priority. Apparently, he had some success. Gillette reduced its working capital by $400 million in the first quarter of 2000, with a further goal of a full $1 billion reduction before the end of the year. As this example suggests, the proper management of credit and inventory can have a significant impact on the profitability of a company and the value investors place on it.

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