Leading UK companies have £76 billion (€113.2 billion) in cash unnecessarily tied up in working capital and are losing ground to their European counterparts in the drive to run their businesses efficiently, according to a new report.

A survey carried out by the REL consultancy group that looked at working capital efficiency at the top 250 UK companies found that poor cash management was leading to the loss of £5 billion in net profits annually.

The UK's rate of improvement in working capital efficiency was only 4.4 per cent this year, lagging significantly behind Europe.

REL estimates that, across Europe, the top 1,000 companies have more than £390 billion tied up in excess working capital.

Like-for-like in the United States is £335 billion. By tying up resources unnecessarily, companies are denying themselves the opportunity to use their cash effectively to make higher profits. They are also denying themselves acquisition currency.

Britain has historically had lower levels of working capital than its European counterparts - a measure of how much of a company's cash is tied up in payables, receivables and inventory. The automotive industry apart, France's excess working capital this year was 11 per cent more efficient at £73.6 billion .

Companies ideally keep as little cash on hand as possible but this is not always viable when they are heavily indebted, especially industries hit by recession.

One reason for the UK's underperformance, some say, is that it remains outside the euro zone. - (Financial Times Service)