Choice Hotels International Inc (CHH)
Cash conversion cycle
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 39.69 | — | — | — | — |
| Days of sales outstanding (DSO) | days | 54.59 | 71.29 | 75.13 | 55.99 | 46.35 |
| Number of days of payables | days | 150.28 | 179.55 | 155.02 | 150.71 | 135.00 |
| Cash conversion cycle | days | -56.01 | -108.25 | -79.89 | -94.73 | -88.65 |
December 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 39.69 + 54.59 – 150.28
= -56.01
Choice Hotels International Inc has shown a consistent improvement in its cash conversion cycle over the past five years. The company has successfully reduced its cash conversion cycle from -88.65 days in 2019 to -56.01 days in 2023. This indicates that Choice Hotels has been able to efficiently manage its working capital and convert its investments in inventory and accounts receivable into cash at a faster rate.
A negative cash conversion cycle signifies that the company's accounts payable are being settled before the collection of accounts receivable, which is a favorable position as it indicates that the company is able to fund its operations using suppliers' credit.
The significant decrease in the cash conversion cycle from -108.25 days in 2022 to -56.01 days in 2023 is particularly noteworthy, suggesting that Choice Hotels International Inc has been able to streamline its operations and improve its efficiency in managing cash flows. This improvement could be attributed to better inventory management, faster collection of receivables, or extending payment terms with suppliers.
Overall, the consistent reduction in the cash conversion cycle over the years reflects positively on Choice Hotels' ability to effectively manage its working capital and liquidity, which is essential for the company's financial health and long-term sustainability.
Peer comparison
Dec 31, 2023