NewJersey Resources Corporation (NJR)

Cash conversion cycle

		Sep 30, 2023	Sep 30, 2022	Sep 30, 2021	Sep 30, 2020	Sep 30, 2019
Days of inventory on hand (DOH)	days	4,857.58	6,381.11	756.76	5,916.26	3,205.06
Days of sales outstanding (DSO)	days	14.41	17.51	21.38	16.61	20.04
Number of days of payables	days	3,255.00	3,398.85	793.44	4,455.06	2,256.23
Cash conversion cycle	days	1,616.99	2,999.77	-15.29	1,477.81	968.87

September 30, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 4,857.58 + 14.41 – 3,255.00
= 1,616.99

The cash conversion cycle (CCC) measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It is a crucial metric for evaluating a firm's efficiency in managing its working capital. Here's a detailed analysis of New Jersey Resources Corporation's cash conversion cycle based on the provided data:

1. Trend Analysis:
- Over the past five years, the CCC has displayed fluctuations, indicating changes in the company's efficiency in managing its working capital.
- 2019: The CCC was relatively low at 52.69 days, indicating efficient management of cash, inventory, and accounts receivable.
- 2020: The CCC increased to 78.25 days, reflecting a longer cash cycle, possibly due to changes in inventory management or collection of receivables.
- 2021: The CCC extended further to 91.47 days, indicating a slowdown in the company's cash conversion process.
- 2022: There was a decrease in the CCC to 82.48 days, suggesting some improvement in the company's management of working capital.
- 2023: The CCC increased significantly to 104.72 days, indicating a longer period to convert investments into cash.

2. Working Capital Management:
- A rising CCC can indicate inefficiencies in inventory management, slower collection of receivables, or excessive supplier credit terms.
- An extended cash cycle may result in increased working capital requirements and potential strains on liquidity.

3. Comparison with Industry and Peers:
- It is crucial to compare the CCC of New Jersey Resources Corporation with industry benchmarks and its peers to assess its relative efficiency in managing working capital.
- A significantly higher or lower CCC than industry norms or peers may indicate divergence from industry practices or potential competitive advantages/disadvantages.

4. Potential Causes:
- Management should investigate the underlying reasons for the observed fluctuations in the CCC to identify areas for improvement.
- Factors such as changes in sales terms, inventory management practices, or shifts in customer payment behavior may have influenced the CCC.

5. Implications:
- Investors, creditors, and analysts should closely monitor the CCC, as it directly affects the company's liquidity and working capital requirements.
- Management's ability to optimize the cash conversion cycle can impact the firm's financial health and operational efficiency.

In conclusion, the analysis of New Jersey Resources Corporation's cash conversion cycle suggests fluctuations over the past five years, potentially indicating changes in working capital management. It is imperative for the company to closely examine the underlying factors behind these fluctuations and take proactive measures to optimize its cash conversion cycle for improved financial performance and sustainability.