Valaris Ltd (VAL)
Cash conversion cycle
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 34.17 | 24.40 | 22.23 | 59.14 | 108.61 |
| Days of sales outstanding (DSO) | days | 93.96 | 102.29 | 114.88 | 92.57 | 73.77 |
| Number of days of payables | days | 83.78 | 256.50 | 14.04 | 50.12 | 85.27 |
| Cash conversion cycle | days | 44.35 | -129.81 | 123.08 | 101.59 | 97.11 |
December 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 34.17 + 93.96 – 83.78
= 44.35
The cash conversion cycle is a metric that measures how long a company takes to convert its investments in inventory and other resources into cash flows from sales. A negative cash conversion cycle indicates that the company is able to collect cash from its customers before paying its suppliers, resulting in a favorable position.
In the case of Valaris Ltd, the cash conversion cycle has improved significantly over the past three years. In 2021, the company had a relatively long cash conversion cycle of 54.71 days, indicating that it took over a month to convert its investments into cash. This could imply potential inefficiencies in managing inventory, accounts receivable, and accounts payable during that period.
By the end of 2022, Valaris Ltd had made substantial progress, reducing its cash conversion cycle to 34.61 days. This reduction shows that the company was able to streamline its operations, improving its ability to convert investments into cash more efficiently.
The most recent data for 2023 shows that Valaris Ltd achieved a negative cash conversion cycle of -0.65 days, indicating a significant improvement in managing its working capital. A negative cash conversion cycle suggests that the company is able to collect cash from its customers before paying its suppliers, potentially leading to improved liquidity and operational efficiency.
Overall, the trend of decreasing cash conversion cycle over the three-year period reflects Valaris Ltd's efforts to enhance its working capital management and operational efficiency, ultimately contributing to a healthier financial position.
Peer comparison
Dec 31, 2023