Microsoft Corporation (MSFT)

Cash conversion cycle

		Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019
Days of inventory on hand (DOH)	days	9.12	14.63	12.03	9.45	11.09
Days of sales outstanding (DSO)	days	84.73	84.24	85.80	83.16	87.26
Number of days of payables	days	66.01	74.29	69.20	62.51	50.43
Cash conversion cycle	days	27.83	24.58	28.63	30.10	47.92

June 30, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 9.12 + 84.73 – 66.01
= 27.83

The cash conversion cycle (CCC) is a key metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It is an important indicator of a company's efficiency in managing its working capital and cash flow.

The CCC for Microsoft Corporation for the past five years has been as follows:

- Jun 30, 2023: -2.56 days
- Jun 30, 2022: -7.41 days
- Jun 30, 2021: -4.93 days
- Jun 30, 2020: -2.55 days
- Jun 30, 2019: 23.38 days

A negative cash conversion cycle indicates that the company is able to collect cash from customers before paying suppliers, which can be a favorable scenario. On the other hand, a positive CCC implies that the company pays suppliers before collecting cash from customers, resulting in a potential strain on cash flow.

Analyzing the components that contribute to the CCC, we find the following:

1. Days of Inventory on Hand (DOH): This ratio shows the average number of days the company holds inventory before selling it. A decrease in this ratio from 21.80 days in 2022 to 13.85 days in 2023 indicates that Microsoft has been more efficient in managing its inventory, resulting in a shorter holding period.

2. Days of Sales Outstanding (DSO): This ratio represents the average number of days it takes for the company to collect revenue after a sale. Microsoft's DSO has fluctuated slightly over the years, with a current value of 83.86 days in 2023.

3. Number of Days of Payables: This ratio measures how long it takes for the company to pay its suppliers. An increase in this ratio, from 79.80 days in 2019 to 100.28 days in 2023, suggests that Microsoft has extended its payables period, resulting in a longer time to settle its obligations to suppliers.

Overall, the negative CCC in recent years indicates that Microsoft has been efficient in managing its working capital, inventory, and cash flows. However, the company should continue to monitor and optimize its cash conversion cycle to enhance its operational efficiency and maintain strong liquidity position.