SM Energy Co (SM)

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	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020	Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Days of inventory on hand (DOH)	days	29.82	13.30	37.46	39.58	23.74	20.49	9.12	5.08	13.39	15.08	—	—	7.53	29.48	47.75	102.35	30.00	74.80	59.31	34.87
Days of sales outstanding (DSO)	days	35.54	39.63	30.21	22.31	25.35	26.58	35.16	38.57	34.40	47.59	52.06	59.98	52.63	39.64	33.95	32.59	42.40	34.82	37.77	32.37
Number of days of payables	days	56.69	—	—	—	21.41	—	—	—	13.93	—	—	—	15.20	—	—	—	28.32	—	—	—
Cash conversion cycle	days	8.67	52.93	67.67	61.89	27.68	47.07	44.28	43.65	33.86	62.67	52.06	59.98	44.96	69.12	81.70	134.94	44.08	109.62	97.09	67.24

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, a key indicator of its efficiency in managing its working capital, has shown fluctuations over the past eight quarters. In Q4 2023, the company's cash conversion cycle was recorded at 35.54 days, indicating the time it takes for the company to convert its investments in raw materials into cash received from sales has increased compared to the previous quarter. However, this figure is still higher than the cycle observed in Q1 and Q2 2023, suggesting potential challenges in the company's operating cycle efficiency.

In analyzing the trend over the past year, SM Energy Co's cash conversion cycle has experienced relative stability, with some quarter-to-quarter variations. Notably, Q1 2023 had the lowest cycle duration of 22.31 days, while Q2 2022 recorded the highest at 35.16 days. Generally, a longer cash conversion cycle can indicate inefficiencies in managing inventory, accounts receivable, and accounts payable, potentially leading to increased working capital needs.

The company should focus on optimizing its inventory management, accelerating accounts receivable collections, and strategically managing accounts payable to shorten its cash conversion cycle. By enhancing operational efficiency and working capital management practices, SM Energy Co can improve its liquidity position and overall financial performance in the long run.