Agilent Technologies Inc (A)
Cash conversion cycle
| Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Oct 31, 2020 | Oct 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 68.62 | 75.97 | 63.43 | 60.66 | 62.05 |
| Days of sales outstanding (DSO) | days | 74.84 | 80.39 | 72.46 | 78.04 | 71.81 |
| Number of days of payables | days | 27.82 | 42.45 | 34.09 | 29.83 | 32.35 |
| Cash conversion cycle | days | 115.64 | 113.91 | 101.81 | 108.88 | 101.51 |
October 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 68.62 + 74.84 – 27.82
= 115.64
The cash conversion cycle (CCC) measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It provides insights into the efficiency of a company's operations, inventory management, and ability to collect receivables.
Looking at Agilent Technologies Inc.'s CCC over the past five years, we observe a gradual increase from 116.05 days in 2019 to 135.39 days in 2023. A higher CCC indicates a longer time span between the company's investment in inventory and the receipt of cash from sales. This suggests a potential deterioration in the efficiency of Agilent's working capital management.
One component affecting the CCC is the company's days inventory outstanding (DIO), which measures the average number of days it takes for Agilent to sell its inventory. An increase in DIO could imply a buildup of inventory or longer inventory turnover, potentially signaling inefficiencies in inventory management. Similarly, the days sales outstanding (DSO) component of the CCC measures the average number of days it takes for the company to collect revenue after a sale. A higher DSO may indicate delayed or extended payment terms for customers, impacting the company's cash flow cycle.
Agilent Technologies Inc. should evaluate and potentially optimize its inventory and accounts receivable management to shorten the cash conversion cycle. By streamlining operations and collection processes, the company could potentially improve its working capital efficiency and cash flow generation.
Overall, the trend of increasing CCC for Agilent Technologies Inc. warrants attention and strategic measures to enhance operational efficiency and working capital management to release cash tied up in the business cycle.
Peer comparison
Oct 31, 2023