SKI may choose to hold large amounts of inventory to avoid the costs of “running short,” and to cater to customers who expect to receive their equipment in a short period of time. SKI may also choose to hold high amounts of receivables to maintain good relationships with its customers. However, if SKI is holding large stocks of inventory and receivables to better serve customers, it should be able to offset the costs of carrying that working capital with high prices or higher sales, and its ROE should be no lower than that of firms with other working capital policies.
It is clear from the data in the table that SKI is not as profitable as the average firm in its industry. This suggests that it simply has excessive working capital, and that it should take steps to reduce its working capital.