Keurig Dr Pepper Inc (KDP)

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	34.33	38.95	31.07	28.28	25.38
Days of sales outstanding (DSO)	days	38.85	46.16	36.61	37.52	41.16
Number of days of payables	days	108.12	154.30	150.00	138.80	123.26
Cash conversion cycle	days	-34.94	-69.20	-82.32	-73.00	-56.72

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 34.33 + 38.85 – 108.12
= -34.94

The cash conversion cycle measures how efficiently a company manages its cash flow from the initial investment in inventory to the final receipt of cash from the sales of that inventory. Keurig Dr Pepper Inc has shown improvement in its cash conversion cycle over the past five years, reflecting enhanced efficiency in managing its working capital.

The cash conversion cycle for Keurig Dr Pepper Inc decreased from -153.80 days in 2019 to -95.64 days in 2023. This signifies a positive trend indicating that the company is taking fewer days to convert its investment in inventory into cash receipts from sales. A lower cash conversion cycle is generally considered favorable as it indicates that the company is able to generate cash quickly from its operating cycle.

The improvement in Keurig Dr Pepper Inc's cash conversion cycle can be attributed to effective inventory management, efficient accounts receivable collection, and optimized accounts payable turnover. By managing these components effectively, the company is able to reduce the time it takes to convert its investments in inventory into cash receipts, thus freeing up cash for other operational needs or investments.

Overall, the decreasing trend in Keurig Dr Pepper Inc's cash conversion cycle reflects its ability to operate more efficiently and generate cash flow more quickly, which can be interpreted as a positive indicator of the company's financial health and operational effectiveness over the analyzed period.