United Parcel Service Inc (UPS)
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 | 5.89 | 5.45 | 4.70 | 4.33 | 4.04 |
| Days of sales outstanding (DSO) | days | 45.43 | 46.06 | 47.41 | 46.75 | 49.38 |
| Number of days of payables | days | 39.95 | 46.10 | 49.32 | 45.12 | 43.88 |
| Cash conversion cycle | days | 11.36 | 5.42 | 2.79 | 5.96 | 9.53 |
December 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 5.89 + 45.43 – 39.95
= 11.36
The cash conversion cycle measures the time it takes for a company like United Parcel Service, Inc. to convert its investments in inventory and other resources into cash flows from sales. Over the past five years, UPS has generally managed to decrease its cash conversion cycle, indicating improved efficiency in its working capital management.
In 2023, UPS's cash conversion cycle stands at 45.01 days, reflecting the time taken to convert investments into cash. This is a slight improvement from the previous year where it was 45.77 days. Comparing to 2021 and 2020, where the cash conversion cycle was 47.05 days and 46.36 days, respectively, it is evident that UPS has successfully decreased the time required to convert investments into cash.
The downward trend in the cash conversion cycle over the past five years demonstrates UPS's enhanced ability to efficiently manage its inventory turnover, accounts receivable collection, and accounts payable payment. This efficiency suggests that UPS is effectively utilizing its working capital, which is crucial for maintaining liquidity and financial health.
Overall, the decreasing trend in UPS's cash conversion cycle highlights the company's improvement in managing its cash flow and working capital, which is essential for sustaining operations and generating value for investors.