Despite higher interest rates: companies have their financing costs under control

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The downside: The surge in inflation, higher interest rates and problems in supply chains pose significant challenges for Swiss companies. The sunny side: Nevertheless, listed Swiss companies remain solidly financed overall and achieved the highest dividend yield in the last five years in 2023 despite headwinds. These are the findings of a new study by Lucerne University of Applied Sciences and Arts.

The latest edition of the IFZ Financing and Treasury Study by Lucerne University of Applied Sciences and Arts (HSLU) clearly shows that the environment is and remains challenging - and this has consequences for companies. Despite higher interest rates, the total interest-bearing debt capital of companies grew by around 4 percent year-on-year as at the end of 2023, reaching CHF 256 billion. At the same time, the dividend yield has never been so high in the last five years - around 3.3% for larger SMI companies and 3.1% in 2023 for smaller listed SPI companies. A total of 153 listed companies were analyzed.

This is where the shoe pinches: slightly more expensive loans and higher inventories

The analysis of working capital management by company size presented for the first time this year shows that the key figure ’Days Working Capital’ (DWC) of listed Swiss companies has risen continuously during the Covid crisis. This refers to the average number of days a company needs to convert the invested working capital into revenue. Before the Covid crisis, this period was 58 days; today it is 65 days. Companies are obviously being forced to retain more capital in their operational processes due to changes in economic conditions and adjustments following the pandemic. "It is noteworthy that since the coronavirus crisis, companies with a lower market capitalization - so-called small cap companies - have tied up more working capital on average compared to mid and large cap companies. This development could indicate particular challenges - such as supply chain problems - at these smaller companies, which leads to a longer capital commitment," explains Markus Rupp, co-author of the HSLU study.

On the other hand, there is good news in the area of customer payment behavior: Over the last ten years, the Days Sales Outstanding (DSO) - the period in which invoices are paid (known as the debtor period) - has fallen from 59 to 51 days. In other words: Companies operate effective working capital management, can shorten the time it takes to pay outstanding amounts and thus improve their liquidity.

Generally higher financing costs - not in the real estate sector

One trend is causing problems for almost all companies: The amount of interest-bearing debt has risen significantly over the last ten years. At the end of 2023, the total had risen by around 4% compared to the previous year, reaching a new high of CHF 256 billion. Industrial companies have the highest borrowing costs with a value of 2.9%. The real estate sector fared best, with average borrowing costs of 1.3% (see figure). "Compared to the previous year, an increase in costs can be observed in all sectors. In view of the higher interest rates, this is no surprise. If you take a closer look, there are also silver linings on the horizon: if you look at the period between 2014 and 2023, most sectors can look forward to a slight downward trend," summarizes study director Thomas K. Birrer.

AI as an extended arm in finance and treasury management

A guest article in the study shows that knowledge workers can achieve significantly higher productivity and quality with the use of AI technology. Accordingly, AI-based tools are also suitable for activities in finance and treasury management. These tools offer opportunities to increase efficiency, particularly when it comes to creating cash flow forecasts, analyzing data and making decisions, as well as automating routine tasks. Not only can problems such as a lack of human resources or the completion of extensive routine tasks be better managed, but companies can also react more agilely and precisely to changes in the (financial) environment.

IFZ Financing and Treasury Study 2024

The fourth edition of the IFZ Financing and Treasury Study is once again dedicated to the complex dimensions of corporate financial management. The following questions on financing remain central: How much capital is required to carry out business activities? And how and on what terms can the required capital be procured?

This study is not only about the liquidity and financing situation of Swiss companies, but also about identifying possible courses of action. To this end, data from SMI and SPI companies listed in Switzerland was collected, processed and analyzed. The current corporate situation in Switzerland is then shown graphically, followed by a differentiated analysis based on sector or size-related characteristics.

As in the previous year, this study also includes other topics in the area of corporate treasury management. These include working capital management in particular. The study once again highlights the latest developments in corporate treasury management.

In addition to the evaluations by the Lucerne University of Applied Sciences and Arts, the study contains seven guest articles that provide a comprehensive overview of current topics and trends:

  1. Not all cyberattacks are created equal
  2. Corporate financing: Tighter credit conditions pose major challenges for companies
  3. Cross-border payments: the course is set for disruption
  4. Global sustainable finance market: changing for the better
  5. Swiss tax consequences of foreign bonds with reference to Liechtenstein
  6. Credit and liquidity premiums in the Swiss capital market
  7. AI-driven treasury: transforming cash flow forecasting with ChatGPT

Various interactive illustrations of the study are also available at hslu.ch/ifz-finanzierungsstudie.