Illinois Tool Works Inc (ITW)

Cash conversion cycle

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Days of inventory on hand (DOH)	days	65.97	78.51	71.96	58.17	51.34
Days of sales outstanding (DSO)	days	72.13	73.61	72.77	74.00	64.68
Number of days of payables	days	22.45	22.70	24.85	26.13	20.82
Cash conversion cycle	days	115.65	129.42	119.89	106.05	95.20

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 65.97 + 72.13 – 22.45
= 115.65

Over the past five years, Illinois Tool Works, Inc. has shown fluctuations in its cash conversion cycle. The cash conversion cycle represents the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

In 2019, the company had a relatively efficient cash conversion cycle of 98.40 days, indicating that it was able to manage its inventory levels effectively and convert them into sales quickly. However, the cash conversion cycle increased in 2020 to 108.50 days, suggesting a slight delay in the conversion process.

In 2021, there was a further increase in the cash conversion cycle to 121.97 days, indicating potential challenges in managing working capital efficiently. This trend continued in 2022, with the cash conversion cycle reaching 131.50 days, the highest point in the past five years.

The most recent data for 2023 shows a slight improvement in the cash conversion cycle, decreasing to 117.79 days. This may indicate that the company has made efforts to streamline its inventory management and collection processes to convert sales into cash more efficiently.

Overall, the fluctuation in Illinois Tool Works, Inc.'s cash conversion cycle over the past five years signals potential areas for improvement in working capital management. The company may benefit from further optimizing its inventory levels, payment terms, and collection processes to shorten its cash conversion cycle and enhance its overall liquidity position.