Now Inc (DNOW)

Cash conversion cycle

		Dec 31, 2023	Sep 30, 2023	Jun 30, 2023	Mar 31, 2023	Dec 31, 2022	Sep 30, 2022	Jun 30, 2022	Mar 31, 2022	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020	Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Days of inventory on hand (DOH)	days	73.97	84.48	87.14	85.41	84.13	84.03	82.08	79.09	70.74	72.11	78.87	78.88	57.68	57.49	57.30	59.09	67.75	80.98	86.51	91.83
Days of sales outstanding (DSO)	days	60.44	62.57	66.20	68.64	68.11	73.33	75.40	71.37	67.99	71.80	70.30	64.94	44.61	40.10	37.36	48.23	45.76	55.30	57.53	59.48
Number of days of payables	days	58.21	61.27	74.81	67.95	67.13	78.91	71.91	74.55	66.49	71.82	68.46	63.87	37.86	29.47	25.71	35.12	37.16	48.17	48.61	49.10
Cash conversion cycle	days	76.20	85.78	78.54	86.10	85.11	78.45	85.57	75.91	72.23	72.09	80.71	79.95	64.42	68.12	68.96	72.19	76.36	88.10	95.43	102.21

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 73.97 + 60.44 – 58.21
= 76.20

The cash conversion cycle of NOW Inc has been fluctuating over the past 8 quarters, ranging from a low of 75.95 days in Q1 2022 to a high of 86.26 days in Q1 2023. The company's cash conversion cycle measures the time it takes for NOW Inc to convert its investments in inventory and other resources into cash inflows from sales.

A lower cash conversion cycle is generally preferred as it signifies that the company is able to efficiently manage its working capital and convert its resources into cash quickly. Conversely, a higher cash conversion cycle indicates a longer period for the company to generate cash from its operating activities.

In analyzing the trend, there seems to be some seasonality in NOW Inc's cash conversion cycle, with variations in different quarters. The company experienced a decrease in the cash conversion cycle from Q3 2022 to Q1 2023, followed by an increase in Q2 2023. This could indicate fluctuations in the company's working capital management or changes in its sales and inventory policies.

Overall, NOW Inc should monitor its cash conversion cycle closely to ensure it remains at an optimal level, balancing the need for efficient working capital management with the timely generation of cash inflows. Additional analysis of the company's operating and financial performance may provide further insights into the drivers behind these fluctuations in the cash conversion cycle.