Walgreens Boots Alliance Inc (WBA)
Cash conversion cycle
| Aug 31, 2023 | Aug 31, 2022 | Aug 31, 2021 | Aug 31, 2020 | Aug 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 20.12 | 22.66 | 22.87 | 20.37 | 25.63 |
| Days of sales outstanding (DSO) | days | 13.98 | 13.77 | 15.67 | 18.73 | 19.37 |
| Number of days of payables | days | 30.78 | 30.53 | 31.21 | 26.10 | 39.39 |
| Cash conversion cycle | days | 3.32 | 5.90 | 7.32 | 13.00 | 5.61 |
August 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 20.12 + 13.98 – 30.78
= 3.32
The cash conversion cycle is a crucial indicator of a company's efficiency in managing its working capital. It represents the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. A shorter cash conversion cycle is generally preferable as it indicates that the company is able to efficiently turn its assets into cash.
Looking at the data for Walgreens Boots Alliance Inc, we can see that the cash conversion cycle has fluctuated over the past five years.
In 2019, the cash conversion cycle was relatively stable at 2.15 days, indicating that the company was able to efficiently manage its working capital and convert its assets into cash within a short period. However, in 2020, there was a slight increase to 2.27 days, suggesting a slightly longer cash conversion cycle.
The trend continued in 2021, with the cash conversion cycle increasing to 5.19 days, which indicates a significant slowdown in the company's ability to convert its investments into cash. This could be a concerning sign of potential inefficiencies in working capital management or delays in the collection of receivables.
The situation improved in 2022, as the cash conversion cycle decreased to 3.66 days, showing a positive reversal in the trend. However, it is essential to note that the cycle still remained higher than the levels seen in 2019 and 2020.
The most recent data for 2023 shows a notable improvement, with the cash conversion cycle actually showing a negative value of -0.14 days. This potentially indicates that the company has become more efficient in converting its investments into cash, possibly through tighter control over inventory and improved collection practices.
In general, the trend in Walgreens Boots Alliance Inc's cash conversion cycle shows some variability over the years. Management should closely monitor working capital efficiency to ensure that the company can effectively convert its investments into cash, thereby maintaining financial stability and supporting growth.
Peer comparison
Aug 31, 2023