AAR Corp (AIR)
Cash conversion cycle
| May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | May 31, 2020 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 121.82 | 900.50 | 974.45 | 1,020.79 | 963.69 |
| Days of sales outstanding (DSO) | days | 46.12 | 44.54 | 43.01 | 37.40 | 30.42 |
| Number of days of payables | days | 39.55 | 248.61 | 276.85 | 240.19 | 296.33 |
| Cash conversion cycle | days | 128.39 | 696.42 | 740.62 | 818.00 | 697.78 |
May 31, 2024 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 121.82 + 46.12 – 39.55
= 128.39
The cash conversion cycle is a useful metric for analyzing how efficiently a company manages its working capital. A shorter cash conversion cycle indicates that a company is able to generate cash more quickly from its operations, which is generally seen as favorable.
Looking at AAR Corp's cash conversion cycle over the past five years, we can observe a significant improvement in efficiency. In May 2020, the company had a cash conversion cycle of 697.78 days, which gradually decreased to 128.39 days in May 2024. This downward trend suggests that AAR Corp has become more effective in managing its cash flow and working capital.
A decrease in the cash conversion cycle can be attributed to a combination of factors such as faster inventory turnover, shorter days sales outstanding (DSO), and longer days payable outstanding (DPO). It indicates that the company is collecting cash from customers more quickly, producing and selling goods at a faster rate, and/or taking longer to pay its suppliers.
Overall, the improvement in AAR Corp's cash conversion cycle over the years reflects positively on the company's operational efficiency and financial management. It signifies a more streamlined cash flow process and better utilization of working capital, which can potentially lead to improved profitability and liquidity in the future.
Peer comparison
May 31, 2024