← Business Metric: Industry Specific (Industrials & Materials) (all topics)
Working capital - electronics manufacturing
What it is
The gap between paying for components and being paid for finished goods. Electronics manufacturing is unusually exposed because components are imported with upfront payment or letters of credit while customers take extended credit
Rapid growth widens the gap in absolute terms even when the cycle in days holds steady
Impact on industries
- Growth consumes cash structurally - fast-growing EMS players have run negative cumulative operating cash flow across multi-year periods despite strong reported profit
- Imported components must often be paid before shipment, so the cycle is longer than a domestic manufacturer's on identical margins
- Component shortages force advance buying and buffer stocks, which lengthens the cycle exactly when demand is strongest
- Scale improves supplier terms, so the cycle should shorten as a manufacturer becomes strategically important to component vendors