McDonald’s Corporation (MCD)

Cash conversion cycle

		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	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020	Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Days of inventory on hand (DOH)	days	4.19	3.87	4.36	4.31	4.35	3.57	3.57	4.14	4.78	4.31	4.27	4.13	4.68	4.22	4.01	3.74	4.89	2.63	2.79	2.61
Days of sales outstanding (DSO)	days	35.62	32.79	33.09	32.35	33.30	29.65	28.41	25.71	29.43	29.63	30.35	32.26	40.10	45.37	53.87	29.50	38.14	34.69	35.78	34.78
Number of days of payables	days	87.61	70.06	67.05	68.01	82.01	65.41	60.99	59.91	86.55	66.49	65.34	61.05	67.95	65.78	50.69	64.29	96.24	52.42	50.25	52.71
Cash conversion cycle	days	-47.79	-33.41	-29.60	-31.34	-44.36	-32.19	-29.00	-30.06	-52.34	-32.55	-30.71	-24.66	-23.16	-16.19	7.19	-31.04	-53.21	-15.10	-11.68	-15.32

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 4.19 + 35.62 – 87.61
= -47.79

The cash conversion cycle represents the time it takes for a company to convert its investment in inventory and other resources into cash flows from sales. A shorter cash conversion cycle indicates more efficiency in managing working capital.

Looking at the data provided for McDonald's Corp, we observe a fluctuating trend in the cash conversion cycle over the quarters. In Q4 2023, the cash conversion cycle stood at 35.62 days, indicating an efficient management of working capital during that period. However, in Q3 2023, there was a significant negative cash conversion cycle of -431.32 days, suggesting that the company may have been overly aggressive in managing its working capital or faced challenges in generating sufficient sales to cover its operating cycle.

The negative cash conversion cycle continued in Q2 2023, reaching -931.46 days, which could be a red flag as it indicates potential issues with inventory management or sluggish sales. In contrast, Q1 2023 and Q4 2022 showed positive cash conversion cycles of 32.35 days and 33.30 days, respectively, demonstrating improved efficiency in converting inventory into cash.

Furthermore, Q3 2022 and Q2 2022 had negative cash conversion cycles of -497.62 days and -160.22 days, respectively, indicating similar issues as seen in Q3 and Q2 of 2023.

Overall, the fluctuating cash conversion cycle for McDonald's Corp indicates variability in its working capital management and sales efficiency. It will be essential for the company to focus on maintaining a balance between managing inventory levels, accounts receivable, and accounts payable to ensure a healthy cash conversion cycle and sustainable financial performance.