Quanex Building Products (NX)
Cash conversion cycle
| Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Oct 31, 2020 | Oct 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 35.83 | 40.72 | 35.12 | 29.24 | 27.67 |
| Days of sales outstanding (DSO) | days | 63.01 | 57.33 | 73.55 | 75.68 | 67.66 |
| Number of days of payables | days | 27.20 | 26.24 | 32.93 | 36.95 | 26.20 |
| Cash conversion cycle | days | 71.64 | 71.81 | 75.73 | 67.96 | 69.12 |
October 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 35.83 + 63.01 – 27.20
= 71.64
The cash conversion cycle measures the time it takes for a company to convert its investments in inventory and other resources into cash inflows from sales. It is calculated as the sum of the days inventory outstanding (DIO), days sales outstanding (DSO), and days payables outstanding (DPO). A shorter cash conversion cycle generally indicates better efficiency in managing working capital.
Based on the provided data, Quanex Building Products Corp's cash conversion cycle has fluctuated over the past five years. In 2023, the company's cash conversion cycle was 44.19 days, representing a slight improvement from the previous year. This indicates that, on average, it took Quanex Building Products Corp 44.19 days to convert its investments in inventory and other resources into cash inflows from sales.
Comparing this to previous years, we observe that the cash conversion cycle was slightly longer in 2022 at 45.15 days, indicating a decrease in efficiency in managing working capital. In contrast, in 2021, the cash conversion cycle was 39.40 days, indicating a more efficient working capital management compared to 2022. In 2020, the company showed a significant improvement in efficiency with a cash conversion cycle of 28.89 days, indicating a faster conversion of investments into cash inflows. However, in 2019, the cycle was longer at 35.74 days compared to 2020.
The fluctuation in the cash conversion cycle suggests variations in the company's ability to manage its inventory, receivables, and payables effectively. It is important to note that a longer cash conversion cycle may tie up cash and working capital, while a shorter cycle may signify better liquidity and efficient management of resources.
It would be beneficial to further analyze the components of the cash conversion cycle, such as inventory turnover, accounts receivable turnover, and accounts payable turnover, to understand the specific drivers behind these changes and to identify areas for potential improvement in working capital management. Additionally, a comparison with industry benchmarks could provide insight into Quanex Building Products Corp's relative performance in this area.
Peer comparison
Oct 31, 2023