Smart Global Holdings Inc (SGH)

Cash conversion cycle

		Aug 25, 2023	Aug 26, 2022	Aug 27, 2021	Aug 28, 2020	Aug 30, 2019
Days of inventory on hand (DOH)	days	47.03	59.80	95.99	56.91	40.01
Days of sales outstanding (DSO)	days	57.62	83.54	76.65	68.22	64.09
Number of days of payables	days	36.28	66.46	113.43	78.44	55.55
Cash conversion cycle	days	68.37	76.87	59.21	46.69	48.55

August 25, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 47.03 + 57.62 – 36.28
= 68.37

The cash conversion cycle (CCC) is a crucial metric for evaluating a company's efficiency in managing its working capital. It indicates the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. A lower CCC generally suggests better working capital management and efficiency.

Analyzing the CCC for SMART Global Holdings Inc over the past five years, we observe the following trend:

Aug 25, 2023: 69.75 days
Aug 26, 2022: 76.45 days
Aug 27, 2021: 55.99 days
Aug 28, 2020: 45.78 days
Aug 30, 2019: 52.03 days

The trend reveals some fluctuations in the CCC over the years, reflecting changes in the company's operating efficiency and management of its working capital.

From 2019 to 2020, there was a notable decrease in the CCC from 52.03 days to 45.78 days, indicating an improvement in the company's ability to convert its investments in inventory into cash. This reduction suggests potential efficiency gains in working capital management, reflecting a quicker conversion of inventory into sales and subsequently into cash inflows.

In 2021, there was a slight increase in the CCC to 55.99 days compared to the previous year. This uptick might indicate a longer cash cycle, possibly due to factors such as changes in inventory management, payment terms, or sales cycle efficiency.

In 2022, there was a further increase in the CCC to 76.45 days, signifying a significant extension in the cash conversion cycle. This rise could raise concerns about the company's ability to efficiently manage its working capital and convert investments into cash.

The most recent data for 2023 shows a decrease in the CCC to 69.75 days, although it remains higher than the levels observed in 2020 and 2021. This suggests potential efforts to improve working capital management, yet further evaluation of the underlying factors affecting the CCC is necessary.

Overall, fluctuations in the CCC of SMART Global Holdings Inc over the past five years highlight the importance of closely monitoring working capital efficiency. The company's management may need to focus on strategies to optimize the cash conversion cycle, such as improving inventory turnover, enhancing receivables collection, and optimizing payment terms with suppliers, to ensure effective working capital management and maximize cash flows from operations.