Organon & Co (OGN)

Cash conversion cycle

		Dec 31, 2023	Sep 30, 2023	Jun 30, 2023	Mar 31, 2023	Dec 31, 2022	Sep 30, 2022	Jun 30, 2022	Mar 31, 2022	Dec 31, 2021
Days of inventory on hand (DOH)	days	104.66	97.13	101.56	96.75	88.39	77.57	83.92	83.79	80.22
Days of sales outstanding (DSO)	days	101.64	97.81	98.94	85.83	87.20	83.53	85.58	75.81	80.02
Number of days of payables	days	104.58	87.38	94.45	85.96	99.75	90.72	99.82	95.74	121.17
Cash conversion cycle	days	101.72	107.55	106.06	96.62	75.83	70.39	69.68	63.85	39.07

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 104.66 + 101.64 – 104.58
= 101.72

The cash conversion cycle measures how long it takes for a company to convert its investments in inventory and other resources into cash flow from sales. A longer cash conversion cycle generally indicates inefficiency in managing working capital.

Organon & Co.'s cash conversion cycle has been fluctuating over the past eight quarters. In Q4 2023, the company's cash conversion cycle stood at 101.78 days, showing an improvement compared to the previous quarter at 115.71 days. Despite this improvement, the cycle remains higher than in earlier quarters, indicating a longer period for the company to convert its resources into cash.

Looking at the trend over the past two years, there has been an overall increase in the cash conversion cycle, indicating potential challenges in managing working capital efficiently. The company experienced a notable uptrend from Q1 2022 to Q3 2023, peaking in Q3 2023 at 115.71 days. This prolonged cycle may signal potential issues with inventory management, payment collection, or cash flow generation.

It is essential for Organon & Co. to monitor and address the fluctuating cash conversion cycle to ensure optimal working capital management. By identifying and mitigating the root causes contributing to the lengthening cycle, the company can improve its operational efficiency, liquidity, and overall financial performance.