Cardinal Health Inc (CAH)

Short-term

Turnover ratios

The analysis of Cardinal Health Inc.’s activity ratios over the specified periods highlights several trends and Insights into the company's operational efficiency.

Inventory Turnover:
The inventory turnover ratio demonstrates a general increasing trend, indicating an improvement in the company’s inventory management and efficiency in converting inventory into sales. Starting from approximately 10.99 times as of September 2020, it fluctuated slightly but showed consistent growth, reaching a peak of around 14.69 times in June 2024 before slightly declining to 11.96 by September 2023 and then moving upward again to 13.28 by March 2025. This pattern reflects effective inventory management, possibly driven by optimized procurement and sales processes, with periods of acceleration likely corresponding to strategic adjustments or shifts in market demand.

Receivables Turnover:
The receivables turnover ratio remains relatively stable throughout the period, generally fluctuating between approximately 16.94 and 19.07. Notable improvements are observed toward the later periods, with ratios reaching above 18.5, indicating an enhanced collection efficiency and shorter receivables collection periods. The stability and slight upward trend in receivables turnover suggest effective credit management policies and possibly tightened credit terms, contributing to better cash flow management.

Payables Turnover:
The payables turnover ratio shows a relatively stable pattern with minor fluctuations. Starting from around 6.81 times in September 2020, it remains within a narrow range, ending at approximately 6.18 in June 2025. The stable payables turnover indicates consistent payment practices and supplier relationships. Slight decreases over time may suggest a strategic approach to extending payables period within acceptable limits to optimize working capital.

Working Capital Turnover:
A significant variation is observed in the working capital turnover ratio, with notable spikes, especially in the periods ending March 2022 and December 2022, where values reach 81.53 and 139.46, respectively. The ratio escalates further to over 400 by December 2023, indicating extremely high efficiency in utilizing working capital resources. These fluctuations may be attributable to changes in working capital components such as accounts receivables, inventory, and payables, or unique operational factors during those periods. The extraordinary ratios suggest periods where the company maximized its liquidity management and asset utilization, possibly due to strategic operational adjustments or market conditions.

Overall, the trends in activity ratios suggest continuous operational improvements, with enhanced inventory and receivables management contributing to better liquidity and asset utilization. The stability of payables turnover reflects disciplined payment practices, while the significant variations in working capital turnover point to periods of heightened operational efficiency or strategic financial management.

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Average number of days

The activity ratios of Cardinal Health Inc., specifically days of inventory on hand (DOH), days of sales outstanding (DSO), and days of payables, exhibit patterns indicative of the company's operational efficiency and working capital management over the period analyzed.

Days of Inventory on Hand (DOH):
The DOH metrics reflect the average number of days inventory remains held before sale or use. From September 2020 to June 2024, the DOH demonstrates a decreasing trend, dropping from approximately 33.20 days to around 24.85 days, signifying a consistent reduction in inventory holding periods. Post-COVID-19 pandemic onset, the company appears to have optimized its inventory levels, likely in response to market conditions and supply chain dynamics. Slight fluctuations are noted, with values rising marginally during some quarters, but the overall trajectory indicates improved inventory turnover. As of September 2024, the DOH is approximately 26.26 days, still below historical highs, suggesting efficient inventory management.

Days of Sales Outstanding (DSO):
The DSO, which measures the average collection period for receivables, has remained relatively stable throughout the period with minor fluctuations. Starting around 20.39 days in September 2020, it fluctuates slightly but generally maintains within the 19 to 21.72-day range, with a slight upward trend towards mid-2025. The stability implies consistent collection procedures, ensuring receivables are converted into cash efficiently without significant delays. The overall operational cycle related to receivables remains steady, supporting stable cash flow generation.

Number of Days of Payables:
The payables period fluctuates but exhibits a general upward trend from about 53.58 days in September 2020 to approximately 59.09 days in June 2025. This indicates an increasingly extended payment cycle to suppliers over time. Notably, during the observed period, there is a tendency towards lengthening the time taken to settle payables, possibly reflecting favorable credit terms negotiated with suppliers or a strategic decision to optimize working capital. Variations, such as dips to lower values around 51.06 days in September 2024, suggest periodic adjustments but the overall trend suggests a tendency toward delaying payments relative to earlier periods.

Summary:
Cardinal Health Inc. has demonstrated a consistent improvement in inventory turnover efficiency, reducing the days inventory is held. The receivables collection cycle has remained stable, indicating efficient cash collection practices. The extension in payables days suggests a strategic approach to manage working capital and supplier credit obligations. Collectively, these activity ratios point to an operational environment focused on optimizing cash flow, enhancing inventory management, and leveraging supplier credit terms to maintain liquidity and operational efficiency over the analyzed period.

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Long-term

The long-term activity ratios of Cardinal Health Inc. demonstrate a notable trend of improvement over the observed period, reflecting the company's increasing efficiency in utilizing its fixed assets and total assets to generate sales.

Starting with the fixed asset turnover ratio, it experienced a steady upward trajectory from approximately 65.28 times at the end of September 2020 to a peak of 88.56 times at the end of September 2024. This consistent increase indicates that the company has been progressively enhancing its utilization of fixed assets, such as property, plant, and equipment, to produce revenue more efficiently. The rise suggests improvements in operational processes, asset management, or strategic investments leading to higher asset productivity.

Similarly, the total asset turnover ratio exhibits a positive trend, moving from 3.71 times at the end of September 2020 to a high of 5.21 times in September 2024. This indicates that the company has been able to generate greater sales volume per dollar of total assets over time. The incremental growth in this ratio suggests increased operational efficiency, perhaps through optimized inventory management, better working capital utilization, or more effective sales strategies.

Overall, the upward movements in both fixed asset turnover and total asset turnover ratios imply that Cardinal Health Inc. has effectively enhanced its asset utilization across its operations during this period. These improvements reflect positively on the company's operational performance, demonstrating a trend toward more efficient use of assets to support sales growth.