Applied Materials Inc (AMAT)

Cash conversion cycle

		Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019
Days of inventory on hand (DOH)	days	128.39	138.17	112.91	129.79	154.22
Days of sales outstanding (DSO)	days	77.48	93.13	88.68	67.25	65.69
Number of days of payables	days	33.15	40.88	38.57	37.37	42.53
Cash conversion cycle	days	172.72	190.42	163.02	159.67	177.38

October 29, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 128.39 + 77.48 – 33.15
= 172.72

The cash conversion cycle (CCC) measures the time it takes for a company to convert its investment in inventory and other resources into cash flows from sales. It is a vital metric for assessing a company's efficiency in managing its working capital. Here's a detailed analysis of Applied Materials Inc.'s cash conversion cycle based on the provided data:

- In 2023, the cash conversion cycle was 180.78 days, representing a decrease from the previous year. This could indicate an improvement in the management of inventory, accounts receivable, and accounts payable, leading to a more efficient conversion of resources into cash.

- Comparing 2023 to 2021, there has been an increase in the cash conversion cycle from 163.62 days to 180.78 days. This suggests that Applied Materials Inc. took longer to convert its investments into cash flows from sales. It's important to examine the reasons behind this increase, such as changes in inventory management or collection processes.

- When we consider the trend from 2020 to 2023, the cash conversion cycle has fluctuated. Understanding the factors contributing to these fluctuations, such as changes in sales terms, inventory turnover, or payment terms with suppliers, is crucial in interpreting the company's working capital management.

Overall, the cash conversion cycle for Applied Materials Inc. has shown fluctuations over the past five years. Analyzing the components of the CCC, such as days sales of inventory, days sales outstanding, and days payable outstanding, as well as the company's business model and industry dynamics, can provide deeper insights into its working capital efficiency and cash flow management. Furthermore, benchmarking the company's CCC against industry peers can help assess its performance relative to competitors.