SM Energy Co (SM)

Cash conversion cycle

Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Days of inventory on hand (DOH) days 29.82 23.74 13.39 7.53 30.00
Days of sales outstanding (DSO) days 35.54 25.35 34.40 52.63 42.40
Number of days of payables days 56.69 21.41 13.93 15.20 28.32
Cash conversion cycle days 8.67 27.68 33.86 44.96 44.08

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 29.82 + 35.54 – 56.69
= 8.67

The cash conversion cycle of SM Energy Co has fluctuated over the past five years. In 2023, the company's cash conversion cycle increased to 35.54 days from 25.35 days in 2022, indicating a longer time taken to convert its investments in inventory and accounts receivable into cash. This increase in the cash conversion cycle suggests potential challenges in managing working capital efficiently.

Comparing to 2021's figure of 34.40 days, the cycle improved slightly in 2023. However, it is notably shorter than the cycle in 2020 and 2019, which were 52.63 days and 42.43 days, respectively. This implies that SM Energy Co has made progress in managing its working capital efficiency over the past few years.

It is crucial for the company to monitor its cash conversion cycle closely as a shorter cycle indicates more effective management of working capital, leading to improved liquidity and financial performance. A longer cycle may indicate inefficiencies in inventory management, accounts receivable collection, or payment processes, which could impact the company's cash flow and profitability.