Merck & Company Inc (MRK)
Activity ratios
Short-term
Turnover ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Inventory turnover | 4.64 | 5.31 | 4.30 | 5.37 | 4.66 |
| Receivables turnover | 5.81 | 6.27 | 5.28 | 5.29 | 5.77 |
| Payables turnover | 7.53 | 7.35 | 5.56 | 6.89 | 7.45 |
| Working capital turnover | 9.29 | 5.16 | 7.62 | 95.01 | 7.43 |
Activity ratios provide insights into how efficiently a company manages its resources. Looking at Merck & Co Inc's activity ratios over the past five years, we observe the following trends:
1. Inventory turnover: This ratio indicates how effectively the company is managing its inventory. Merck & Co Inc's inventory turnover has fluctuated slightly over the years, with a range from 2.29 to 2.95. A higher turnover ratio suggests that the company is selling its inventory more quickly, potentially reducing carrying costs and minimizing the risk of obsolescence.
2. Receivables turnover: The receivables turnover ratio measures how well the company collects on credit sales. Merck & Co Inc's receivables turnover has remained relatively stable, ranging from 5.28 to 6.91 over the past five years. A higher turnover ratio indicates that the company is efficient in collecting payments from customers.
3. Payables turnover: This ratio reflects how efficiently the company pays its suppliers. Merck & Co Inc's payables turnover ratio has also exhibited consistency, varying between 2.96 and 4.11. A higher turnover ratio suggests that the company is managing its payables effectively by paying suppliers in a timely manner.
4. Working capital turnover: This ratio represents how efficiently the company generates revenue from its working capital. Merck & Co Inc's working capital turnover has shown significant fluctuations, with a drastic drop in 2020 followed by a sharp increase in 2021. This spike in 2021 suggests a substantial improvement in utilizing working capital to generate sales revenue.
In summary, Merck & Co Inc has demonstrated a decent level of efficiency in managing its inventory, accounts receivable, and accounts payable over the past five years. The notable improvement in working capital turnover in 2021 indicates a significant enhancement in utilizing working capital to drive sales.
Average number of days
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 78.61 | 68.80 | 84.84 | 68.00 | 78.32 |
| Days of sales outstanding (DSO) | days | 62.84 | 58.18 | 69.17 | 69.02 | 63.24 |
| Number of days of payables | days | 48.49 | 49.63 | 65.69 | 52.98 | 48.97 |
Days of inventory on hand (DOH) for Merck & Co Inc increased from 123.92 days in 2022 to 143.91 days in 2023, indicating that the company took longer to sell its inventory in 2023. This could suggest potential issues with inventory management or a decrease in demand for its products.
Days of sales outstanding (DSO) also increased from 58.18 days in 2022 to 62.84 days in 2023, showing that Merck & Co Inc took longer to collect payments from customers in 2023. This could signify potential problems with credit policies or difficulties in collecting receivables.
On the other hand, the number of days of payables increased from 89.39 days in 2022 to 88.77 days in 2023, indicating that the company took slightly fewer days to pay its suppliers in 2023. This could imply improved relationships with suppliers or more efficient payment processes.
Overall, an increase in DOH and DSO alongside a decrease in the number of days of payables may signal liquidity challenges for Merck & Co Inc in 2023, as the company is taking longer to convert inventory into cash and collect payments from customers while paying suppliers more promptly.
See also:
Merck & Company Inc Short-term (Operating) Activity Ratios
Long-term
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Fixed asset turnover | 2.61 | 2.77 | 2.53 | 2.44 | 2.74 |
| Total asset turnover | 0.56 | 0.54 | 0.46 | 0.45 | 0.46 |
The fixed asset turnover ratio measures how efficiently a company utilizes its fixed assets to generate sales revenue. A higher ratio indicates better asset utilization. Over the past five years, Merck & Co Inc's fixed asset turnover has fluctuated, decreasing from 3.11 in 2019 to 2.61 in 2023. This downward trend suggests a decrease in the company's ability to generate revenue using its fixed assets efficiently.
On the other hand, the total asset turnover ratio reflects the company's overall efficiency in generating sales from all assets, both fixed and current. A higher total asset turnover implies better asset utilization and a more efficient operation. Merck & Co Inc's total asset turnover has also varied over the past five years, ranging from 0.46 in 2021 to 0.56 in 2023. The improving trend in this ratio indicates that the company has been more efficient in generating sales from its total assets in recent years.
In summary, while Merck & Co Inc's fixed asset turnover has shown a decreasing trend, its total asset turnover has seen an improvement. This suggests that the company may have shifted towards more efficient overall asset utilization, despite a slight decline in the efficiency of its fixed asset turnover.