Merck & Company Inc (MRK)
Activity ratios
Short-term
Turnover ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Inventory turnover | 4.60 | 4.64 | 5.31 | 4.30 | 5.37 |
| Receivables turnover | 6.24 | 5.81 | 6.27 | 5.28 | 5.29 |
| Payables turnover | 6.89 | 7.53 | 7.35 | 5.56 | 6.89 |
| Working capital turnover | 6.19 | 9.29 | 5.16 | 7.62 | 95.01 |
The activity ratios of Merck & Company Inc provide insights into the company's efficiency in managing its inventory, receivables, payables, and working capital.
1. Inventory Turnover:
- The inventory turnover ratio decreased from 5.37 in 2020 to 4.30 in 2021, indicating that Merck turned over its inventory more slowly in 2021.
- However, there was an improvement in 2022 with the ratio increasing to 5.31, suggesting better management of inventory levels.
- In 2023 and 2024, the inventory turnover ratios decreased slightly to 4.64 and 4.60, respectively, implying a slight dip in efficiency in managing inventory during those years.
2. Receivables Turnover:
- The receivables turnover ratio remained relatively stable over the years, ranging from 5.28 to 6.27.
- This indicates that Merck was able to collect its accounts receivable in a consistent manner, with a slight improvement in 2022 and 2024.
3. Payables Turnover:
- The payables turnover ratio fluctuated over the years, ranging from 5.56 to 7.53.
- A higher payables turnover ratio indicates that Merck is taking longer to pay its suppliers, which can be beneficial for cash flow management.
- The payables turnover ratio was highest in 2023, at 7.53, which suggests that Merck delayed payments to suppliers during that year.
4. Working Capital Turnover:
- The working capital turnover ratio experienced significant fluctuations, from 95.01 in 2020 to 5.16 in 2022.
- A higher working capital turnover ratio indicates that Merck is generating more revenue relative to its working capital investment.
- The sharp decline in the ratio from 2020 to 2022 suggests a decrease in revenue generation efficiency in relation to working capital during those years.
In conclusion, while the inventory turnover and working capital turnover ratios fluctuated significantly, the receivables turnover and payables turnover ratios remained relatively stable. Merck may need to focus on optimizing its inventory management and working capital efficiency to enhance overall operational effectiveness.
Average number of days
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 79.28 | 78.61 | 68.80 | 84.84 | 68.00 |
| Days of sales outstanding (DSO) | days | 58.46 | 62.84 | 58.18 | 69.17 | 69.02 |
| Number of days of payables | days | 52.94 | 48.49 | 49.63 | 65.69 | 52.98 |
The activity ratios of Merck & Company Inc indicate the efficiency of its operations in managing inventory, collecting receivables, and paying its suppliers.
1. Days of Inventory on Hand (DOH):
- The DOH measures how long, on average, Merck holds inventory before it is sold.
- The trend shows an increase from 68.00 days in 2020 to 79.28 days in 2024, indicating a longer period of inventory holding.
- This suggests potential issues with inventory management such as overstocking or slow-moving inventory, which can tie up capital and impact profitability.
2. Days of Sales Outstanding (DSO):
- The DSO reflects the average number of days it takes for Merck to collect payment after a sale is made.
- The trend fluctuates but generally shows a decrease from 69.02 days in 2020 to 58.46 days in 2024, indicating faster collections over time.
- A lower DSO is favorable as it signifies a more efficient accounts receivable management process, allowing the company to access cash sooner for operational needs.
3. Number of Days of Payables:
- This ratio signifies the average number of days it takes for Merck to pay its suppliers after receiving goods or services.
- The trend fluctuates but shows a decrease from 52.98 days in 2020 to 52.94 days in 2024, indicating relatively stable payment terms.
- A stable or slightly decreasing trend in payables days suggests that Merck is managing its payables effectively without causing strain on its relationships with suppliers.
In summary, while Merck shows improvements in days of sales outstanding, indicating efficient collections, the increasing trend in days of inventory on hand should be monitored to ensure optimal inventory management. Additionally, the stability in the number of days of payables suggests a balanced approach to managing payables without negatively impacting supplier relationships.
See also:
Long-term
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Fixed asset turnover | 2.70 | 2.61 | 2.77 | 2.53 | 2.44 |
| Total asset turnover | 0.55 | 0.56 | 0.54 | 0.46 | 0.45 |
The long-term activity ratios for Merck & Company Inc show a positive trend in efficiency over the years.
1. Fixed Asset Turnover:
- The fixed asset turnover ratio measures how efficiently the company generates revenue from its fixed assets.
- The ratio has improved steadily from 2.44 in 2020 to 2.70 in 2024.
- This indicates that the company is effectively utilizing its fixed assets to generate sales, reflecting improved operational efficiency and productivity.
2. Total Asset Turnover:
- The total asset turnover ratio indicates how well the company utilizes all its assets to generate revenue.
- The ratio has shown a consistent increase from 0.45 in 2020 to 0.55 in 2024.
- This suggests that Merck & Company is becoming more efficient in generating sales relative to its total assets, which is a positive sign of improved business operations and asset utilization.
In summary, the data suggests that Merck & Company Inc has been able to enhance its operational efficiency and asset utilization over the years, as evidenced by the upward trend in both fixed asset turnover and total asset turnover ratios.