Hormel Foods Corporation (HRL)
Cash conversion cycle
| Oct 27, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Oct 25, 2020 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 52.65 | 55.22 | 55.92 | 48.35 | 45.71 |
| Days of sales outstanding (DSO) | days | 26.59 | 25.01 | 25.77 | 29.10 | 28.32 |
| Number of days of payables | days | 24.57 | 25.35 | 26.61 | 28.01 | 27.47 |
| Cash conversion cycle | days | 54.67 | 54.88 | 55.08 | 49.43 | 46.57 |
October 27, 2024 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 52.65 + 26.59 – 24.57
= 54.67
The cash conversion cycle (CCC) of Hormel Foods Corporation has shown a slight increase over the past few years, indicating potential challenges in managing the company's working capital efficiently. The CCC increased from 46.57 days in 2020 to 54.67 days in 2024, reaching its peak in the most recent year analyzed.
A higher CCC suggests that the company takes longer to convert its investments in raw materials into cash from sales, which can potentially tie up capital and impact liquidity. In Hormel Foods' case, the cycle has been hovering between 49.43 days and 55.08 days over the past five years, indicating that there may be room for improvement in managing inventory, accounts receivable, and accounts payable more effectively to shorten the cash conversion cycle.
It is essential for Hormel Foods to focus on optimizing its working capital management practices to streamline operations, improve cash flow, and enhance overall financial performance. By reducing the CCC, the company can potentially free up cash that can be reinvested in growth opportunities or used to strengthen its financial position.