Cabot Corporation (CBT)
Cash conversion cycle
| Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 69.06 | 70.54 | 73.14 | 61.98 | 64.14 |
| Days of sales outstanding (DSO) | days | 64.53 | 70.62 | 69.06 | 58.37 | 57.97 |
| Number of days of payables | days | 51.70 | 56.62 | 67.13 | 54.56 | 53.68 |
| Cash conversion cycle | days | 81.88 | 84.53 | 75.07 | 65.79 | 68.43 |
September 30, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 69.06 + 64.53 – 51.70
= 81.88
The cash conversion cycle (CCC) is a measure of the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It provides insight into the efficiency of a company's operations and its ability to manage working capital. A shorter CCC is generally considered favorable as it indicates efficient inventory management and faster collection of receivables.
Analyzing Cabot Corp.'s cash conversion cycle over the past five years, we observe a fluctuating trend. In 2023, the CCC was 81.88 days, a slight improvement from the previous year. This suggests that Cabot Corp. may have been more effective in managing its working capital, which could be due to better inventory management and/or an improvement in the collection of receivables.
However, it's important to note that the 2023 CCC of 81.88 days is higher than the CCC in 2021, which was 75.07 days. This indicates that Cabot Corp. took longer to convert its resources into cash flows in 2023 compared to 2021. The increase in the CCC may be attributed to various factors such as changes in the company's sales and production processes, as well as fluctuations in supplier terms and customer payment behavior.
Looking further back, the CCC was even higher in 2020 (65.79 days) and 2019 (68.43 days). The 2020 period saw a lower CCC, indicating that Cabot Corp. was more efficient in managing its working capital compared to 2023.
In conclusion, while the CCC has fluctuated over the past five years, with some periods showing improvements and others exhibiting increases, it is essential for Cabot Corp. to continue monitoring and managing its working capital effectively to ensure optimal operational efficiency and cash flow generation. This will involve evaluating and potentially adjusting inventory management, credit policies, and payment terms to maintain a healthy balance between investment in working capital and the generation of cash flows from operations.
Peer comparison
Sep 30, 2023