ABM Industries Incorporated (ABM)
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 | 3.73 | 4.02 | 5.37 | 5.29 | 4.36 |
| Days of sales outstanding (DSO) | days | — | — | — | — | — |
| Number of days of payables | days | 14.20 | 15.45 | 17.52 | 16.94 | 16.16 |
| Cash conversion cycle | days | -10.47 | -11.43 | -12.15 | -11.65 | -11.80 |
October 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 3.73 + — – 14.20
= -10.47
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 is a crucial indicator of a company's operational efficiency and liquidity management. Analyzing the CCC of ABM Industries Inc. over the past five years provides valuable insights into its working capital management.
From the given data, we observe a fluctuation in ABM Industries Inc.'s cash conversion cycle over the past five years. In 2023, the CCC increased to 67.81 days from 63.33 days in 2022, indicating a slight decrease in efficiency in converting resources into cash. This rise in the CCC may be attributed to various factors such as changes in inventory management, accounts receivable turnover, or accounts payable turnover.
Comparing to 2021, the CCC also increased slightly in 2023. In 2021, the company reported a higher cash conversion cycle of 69.71 days, suggesting a less efficient cash conversion process. However, it is worth noting that the CCC in 2023 is still lower than that of 2021, indicating an improvement in the company's working capital management compared to two years ago.
Furthermore, in 2020 and 2019, the CCC was 55.25 days and 60.98 days, respectively. These lower CCC values indicate a more efficient cash conversion cycle in those years compared to the recent years, suggesting that ABM Industries Inc. had historically managed its working capital more effectively.
The fluctuations observed in the cash conversion cycle indicate the evolving nature of ABM Industries Inc.'s working capital management and operational efficiency. Management should further analyze the components of the CCC, such as the inventory turnover period, accounts receivable collection period, and accounts payable payment period, to identify areas for improvement and implement strategies to optimize the cash conversion cycle. Overall, the trend in the CCC reflects the company's ability to efficiently manage its working capital and generate cash flows from its operating activities.
Peer comparison
Oct 31, 2023