← Business Metric: Industry Specific (Industrials & Materials) (all topics)
Working capital - shipbuilding advances
What it is
Customer advances and milestone payments received before the corresponding revenue is earned, held as a liability until delivery. Warship and commercial vessel contracts carry large stage payments across multi-year builds
They fund working capital and often leave defence shipyards in a net cash position
Impact on industries
- The build is funded by the customer, so a shipyard can carry a very large order book without proportionate debt
- Surplus advances earn treasury income, which is a meaningful share of reported profit at several defence yards
- It flatters the balance sheet - large cash balances are customer money against future obligations, not distributable surplus
- Advance receipts fall when order intake slows, so cash position deteriorates ahead of revenue and can surprise on the downside