| Reasons to Watch U.S. Steel’s Working Capital | |
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U.S. Steel Corporation's 2Q15 Earnings: Investor Highlights (Continued from Prior Part) U.S. Steel’s working capital
Previously in this series, we explored U.S. Steel Corporation’s (X) plans to realize substantial cost savings by properly managing its supply chain. Now, we’ll look at some tangible measures that U.S. Steel is taking to reduce its working capital. Working capital is the capital a company uses in its day-to-day operations. It can be defined as current assets minus current liabilities.
Working capital management is crucial
Companies have to invest capital toward their working capital. Generally, this capital is in the form of short-term loans. These loans have interest costs attached to them. As a result, a company’s interest expenses increase if it has more working capital.
Working capital management is crucial for steel companies including ArcelorMittal (MT) and Nucor (NUE).
Nucor currently forms 5.23% of the SPDR S&P Metals and Mining ETF (XME) and 2.65% of the Materials Select Sector SPDR ETF (XLB).
Cash conversion cycle
The cash conversion cycle measures a company’s working capital in numbers of days. Cash is used in inventory and receivables, and payables act as a source of funds. The cash conversion cycle tells us how many days of cash is tied up in a company’s operations before it’s converted to cash again.
The previous chart shows U.S. Steel’s cash conversion cycle. As you can see, it fell in 2Q15. A decline in DPO (days payable outstanding) has been the biggest reason for the fall in U.S. Steel’s cash conversion cycle. Lower DPO means that U.S. Steel is taking more time to pay its suppliers. This helps U.S. Steel control its cash outflow. Working capital was a net contributor to U.S. Steel’s 2Q15 cash flow.
What other factors contributed to U.S. Steel’s 2Q15 cash flow? We’ll find out in our next part.
Continue to Next Part Browse this series on Market Realist:
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United States Steel Corporation
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CODE : X |
ISIN : US9129091081 |
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ProfileMarket IndicatorsVALUE : Projects & res.Press releasesAnnual reportRISK : Asset profileContact Cpy |
United States Steel is a iron and tin producing company based in United states of america. United States Steel is listed in United States of America. Its market capitalisation is US$ 6.7 billions as of today (€ 6.1 billions). Its stock quote reached its lowest recent point on March 28, 2003 at US$ 10.01, and its highest recent level on November 30, 2007 at US$ 98.85. United States Steel has 176 184 431 shares outstanding. |