Late 1970s–1980s
Late 1970s–1980s – Profit over Working Capital
In the spring of 1981, CFO Anders Börjesson, who had joined at the time of the IPO, and his colleague Torsten Fardell launched the business tool that would define Bergman & Beving for generations: P/WC, or Profit over Working Capital (P/WC). Inspired by the asset-light approach applied by successful Swedish entrepreneurs such as Ingvar Kamprad and Erling Persson, the metric measures how much profit a business generates for every krona tied up in inventory, receivables, and payables. During a period of persistent inflation, volatile interest rates, and expensive capital, the company concluded that revenue growth alone was insufficient. What mattered was how efficiently capital was used to create value.
Historical Context
The late 1970s and 1980s were marked by persistent inflation, currency instability, and structural market changes. Trade within Europe was expanding, parallel imports eroded national agency monopolies, and global competition intensified. For a trading group like Bergman & Beving, working capital was the lifeblood of operations, and the cost of tying up capital suddenly became very tangible.
Structural Decision
Explicit return thresholds of at least 45 percent P/WC were introduced for each part of the business. The results were dramatic: between 1979/80 and 1983/84, P/WC improved from 32 to 75 percent as the metric was implemented across the organisation, and the profit margin rose from 6.3 to 9.6 percent. P/WC was embedded into management incentives, investment decisions, and acquisition criteria. In parallel, the company invested heavily in its internal Business School with close to 10 percent of the cost base devoted to employee development during the 1980s, transforming engineers into business professionals.
Consequence
P/WC became the lens through which virtually every decision was evaluated. It also became the governing logic for capital allocation: companies achieving P/WC above 45 percent are allocated capital for growth initiatives and acquisitions; those between 25 and 45 percent must first demonstrate improved margins and capital efficiency; those below 25 percent receive no growth capital and must focus exclusively on profitability. This tiered discipline created a culture where efficiency and accountability were inseparable, and served as a natural selection mechanism – resources were concentrated in the highest-returning parts of the group.
What Endured
P/WC remains the most important metric in Bergman & Beving’s capital allocation framework. It has survived multiple economic cycles, structural reorganisations, and changes in leadership. It is a testament to its simplicity and effectiveness. The checklist that Börjesson and Fardell developed for evaluating business ideas is still in use today, more than four decades later.