Watsco Inc (WSO)
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 | 92.93 | 95.37 | 88.27 | 74.42 | 93.01 |
| Days of sales outstanding (DSO) | days | 39.98 | 37.49 | 40.59 | 38.65 | 40.84 |
| Number of days of payables | days | 25.48 | 31.75 | 28.82 | 23.96 | 24.21 |
| Cash conversion cycle | days | 107.43 | 101.11 | 100.04 | 89.11 | 109.65 |
December 31, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 92.93 + 39.98 – 25.48
= 107.43
The cash conversion cycle of Watsco Inc. has fluctuated over the past five years.
In 2023, the cash conversion cycle increased slightly to 107.43 days from 101.11 days in 2022. This indicates that, on average, it took Watsco Inc. a longer period in 2023 to convert its investments in inventory and accounts receivable into cash received from customers.
Comparing this to 2021, the cash conversion cycle increased by approximately 7.39 days. This rise may be attributed to changes in inventory management efficiency or the timing of accounts receivable collections in 2023 compared to 2021.
In 2020, the cash conversion cycle was 89.11 days, which was lower than the cycle in 2023. This suggests that Watsco Inc. was more efficient in managing its cash flows in 2020 compared to 2023.
Furthermore, in 2019, the cash conversion cycle was 109.65 days, higher than in 2023. Consequently, there has been improvement in managing working capital and converting it into cash from 2019 to 2023.
Overall, the trend in the cash conversion cycle over the past five years shows fluctuations, with the cycle peaking in 2019 before decreasing in 2020, increasing in 2021, slightly decreasing in 2022, and then increasing again in 2023. Additional analysis of the company's inventory management, accounts receivable collection processes, and overall working capital efficiency is recommended to understand the reasons behind these fluctuations.