Freshpet Inc (FRPT)

Cash conversion cycle

		Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020
Days of inventory on hand (DOH)	days	50.91	44.73	51.98	49.31	37.54
Days of sales outstanding (DSO)	days	25.61	27.01	35.30	29.84	21.11
Number of days of payables	days	24.68	25.53	49.12	59.06	32.31
Cash conversion cycle	days	51.84	46.21	38.15	20.08	26.35

December 31, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 50.91 + 25.61 – 24.68
= 51.84

The analysis of Freshpet Inc.'s cash conversion cycle (CCC) over the specified period indicates notable fluctuations and an overall upward trend. As of December 31, 2020, the CCC was 26.35 days, reflecting the period it took for the company to convert its investments in inventory and receivables into cash, minus the payable period. By December 31, 2021, this figure decreased to 20.08 days, suggesting an improvement in operational efficiency and a shorter cycle to realize cash from operations.

However, the trend reverses in subsequent years, with the CCC rising to 38.15 days on December 31, 2022, indicating a lengthening of the cycle. This could point to increased inventory holdings, delays in receivables collection, or changes in supplier payment terms negatively impacting cash flow timing. The upward trajectory continues into 2023, with the CCC reaching 46.21 days, further extending the period that cash remains tied up in operations.

Year-over-year, the trend persists as the CCC extends to 51.84 days by December 31, 2024. This ongoing increase in the cash conversion cycle suggests a deterioration in the company's operational cash flow efficiency, potentially resulting from factors such as inventory buildup, extended receivables, or delayed payments to suppliers. The elongation of the cycle can exert pressure on working capital management, possibly affecting liquidity and requiring strategic adjustments to inventory and receivables management practices.

In summary, Freshpet Inc. experienced a temporary improvement in its cash conversion cycle in 2021 but faced a prolonged deterioration in subsequent years, highlighting evolving challenges in maintaining optimal cash flow timing and operational efficiency.