DigitalOcean Holdings Inc (DOCN)

Cash conversion cycle

		Mar 31, 2024	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
Days of inventory on hand (DOH)	days	—	—	—	—	—	—	42.77	—	—	—
Days of sales outstanding (DSO)	days	32.72	32.76	32.57	32.05	32.67	34.09	40.92	32.66	33.58	33.74
Number of days of payables	days	5.81	5.09	19.36	13.67	16.98	36.41	21.89	35.44	33.44	27.08
Cash conversion cycle	days	26.90	27.67	13.21	18.38	15.69	-2.31	61.80	-2.77	0.15	6.66

March 31, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= — + 32.72 – 5.81
= 26.90

The cash conversion cycle measures how efficiently a company manages its working capital by evaluating the time it takes to convert its investments in inventory and other resources into cash inflows from sales.

Based on the provided data for DigitalOcean Holdings Inc, the cash conversion cycle has varied over the past several quarters. In the most recent quarter ending Mar 31, 2024, the company had a cash conversion cycle of 26.90 days, indicating that it took approximately 26.90 days to convert its investments in inventory and accounts receivable into cash from sales.

The trend in the cash conversion cycle over the past year shows fluctuations, with some quarters having negative values, which could suggest that the company was managing its working capital efficiently and generating cash quickly from its operations. However, in other quarters, such as Sep 30, 2022, and Jun 30, 2022, the cash conversion cycle was significantly longer, at 61.80 days and 61.80 days respectively, which may indicate potential inefficiencies in managing working capital.

Overall, the analysis of DigitalOcean Holdings Inc's cash conversion cycle suggests that the company has experienced variability in its operational efficiency in converting investments into cash inflows. Management should focus on maintaining a consistent and efficient cash conversion cycle to optimize working capital management and enhance overall liquidity.