DigitalOcean Holdings Inc (DOCN)

Cash conversion cycle

		Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021
Days of inventory on hand (DOH)	days	—	—	—	—
Days of sales outstanding (DSO)	days	33.89	32.76	34.09	33.74
Number of days of payables	days	63.29	4.89	36.41	27.08
Cash conversion cycle	days	-29.40	27.87	-2.31	6.66

December 31, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= — + 33.89 – 63.29
= -29.40

The cash conversion cycle is a key metric that evaluates how efficiently a company manages its working capital through its operations. For DigitalOcean Holdings Inc, the trend in the cash conversion cycle over the four years is as follows:

1. As of December 31, 2021, the company had a cash conversion cycle of 6.66 days, indicating that it takes approximately 6.66 days for DigitalOcean to convert its investments in inventory and accounts receivable into cash.

2. By December 31, 2022, the cash conversion cycle improved significantly to -2.31 days. A negative cash conversion cycle suggests that the company is able to collect cash from customers before paying its suppliers, resulting in a favorable working capital position.

3. However, the cash conversion cycle increased notably by December 31, 2023, reaching 27.87 days. This increase indicates a lengthening of the time it takes for DigitalOcean to convert its investments in inventory and accounts receivable into cash, potentially signaling inefficiencies in working capital management during that period.

4. Subsequently, by December 31, 2024, the cash conversion cycle dramatically decreased to -29.40 days, suggesting a significant improvement in the company's working capital management. A negative cash conversion cycle implies that DigitalOcean is efficiently converting its investments into cash, possibly due to strong collection practices and effective inventory management.

In summary, DigitalOcean's cash conversion cycle experienced fluctuations over the four-year period, with improvements observed in certain years and potential challenges in others. It is essential for the company to monitor and manage its cash conversion cycle effectively to optimize its working capital and overall financial performance.