Paychex Inc (PAYX)
Cash conversion cycle
| May 31, 2024 | May 31, 2023 | May 31, 2022 | May 31, 2021 | May 31, 2020 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | — | 1,059.25 | — | 1,101.09 | 996.60 |
| Days of sales outstanding (DSO) | days | 112.39 | 103.96 | 104.33 | 94.79 | 71.39 |
| Number of days of payables | days | 25.73 | 21.28 | 28.45 | 25.55 | 22.63 |
| Cash conversion cycle | days | 86.66 | 1,141.94 | 75.89 | 1,170.33 | 1,045.36 |
May 31, 2024 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= — + 112.39 – 25.73
= 86.66
The cash conversion cycle measures how efficiently a company manages its working capital to generate cash flow from operations. Paychex Inc's cash conversion cycle has fluctuated significantly over the past five years.
In the most recent fiscal year ending May 31, 2024, the cash conversion cycle was 86.66 days, which represents a substantial improvement compared to the previous years. This indicates that Paychex is managing its cash conversion cycle more effectively, reducing the time it takes to convert its investments in inventory and accounts receivable into cash.
In contrast, in May 2023 and May 2021, Paychex experienced significantly extended cash conversion cycles of 1,141.94 days and 1,170.33 days, respectively. These longer cash conversion cycles suggest that Paychex may have faced challenges in efficiently managing its working capital and turning its assets into cash during those periods.
Overall, the improvement in the cash conversion cycle in 2024 compared to previous years is a positive sign for Paychex's operational efficiency and liquidity management. It indicates that the company has made strides in optimizing its working capital management practices, which could lead to enhanced cash flow generation and financial performance.