Gilead Sciences Inc. (NASDAQ:GILD)

An analysis of short-term operating activity ratios reveals several trends over the five-year period. Generally, the company demonstrates moderate consistency in some areas, while others exhibit more pronounced fluctuations. A notable trend is a decline in efficiency metrics related to working capital, contrasted with some improvements in receivable management.

Inventory Management

Inventory turnover decreased consistently from 4.08 in 2021 to 3.51 in 2025. This suggests a slowing in the rate at which inventory is sold and replenished. Correspondingly, the average inventory processing period lengthened from 89 days in 2021 to 104 days in 2025, indicating inventory is held for a longer duration. This could be due to a variety of factors, including changes in product mix, increased warehousing costs, or potential obsolescence.

Receivables Management

Receivables turnover experienced some volatility, decreasing from 6.01 in 2021 to 5.65 in 2022, then increasing to 6.47 in 2024 before settling at 5.89 in 2025. The average receivable collection period generally increased from 61 days in 2021 to 65 days in 2022, decreased to 56 days in 2024, and then increased again to 62 days in 2025. While fluctuations exist, the collection period shows a slight overall lengthening, but with a notable improvement in 2024. This suggests some variability in the company’s ability to collect on its credit sales.

Payables Management

Payables turnover demonstrated significant variation. It decreased substantially from 9.36 in 2021 to 6.25 in 2022, increased sharply to 11.81 in 2023, then decreased to 7.50 in 2024, and finally rose to 8.72 in 2025. The average payables payment period increased from 39 days in 2021 to 58 days in 2022, decreased to 31 days in 2023, increased to 49 days in 2024, and decreased to 42 days in 2025. This volatility suggests changes in supplier credit terms or the company’s payment strategies.

Working Capital & Operating Cycle

Working capital turnover declined considerably from 8.54 in 2021 to 3.99 in 2024, with a slight recovery to 4.43 in 2025. This indicates a decreasing efficiency in utilizing working capital to generate sales. The operating cycle generally increased from 150 days in 2021 to 166 days in 2025, reflecting a longer time to convert raw materials into cash. The cash conversion cycle increased from 111 days in 2021 to 132 days in 2023, then decreased to 107 days in 2024, and increased again to 124 days in 2025. This suggests a lengthening of the time required to convert investments in inventory and receivables into cash, although with some fluctuation.

In summary, the observed trends suggest a potential decline in overall operating efficiency, particularly concerning working capital management. While receivables management shows some positive signs, the lengthening inventory processing period and fluctuating payables terms contribute to a more extended cash conversion cycle. Further investigation into the underlying causes of these trends is warranted.

The inventory turnover ratio exhibits a generally decreasing trend over the five-year period. While cost of goods sold fluctuates, inventories remain relatively stable, driving the observed changes in the ratio.

Inventory Turnover Trend

The inventory turnover ratio decreased from 4.08 in 2021 to 3.51 in 2025. This indicates a lengthening of the average time it takes to sell inventory. The most significant decline occurred between 2021 and 2022, with a decrease of 0.33. Subsequent changes are more moderate.

Cost of Goods Sold

Cost of goods sold decreased from US$6,601 million in 2021 to US$5,657 million in 2022, then increased to US$6,498 million in 2023. It experienced a slight decrease in both 2024 and 2025, settling at US$6,234 million. These fluctuations in cost of goods sold do not fully explain the consistent decline in inventory turnover.

Inventory Levels

Inventory levels decreased from US$1,618 million in 2021 to US$1,507 million in 2022, then increased to US$1,787 million in 2023. Inventory decreased slightly in 2024 to US$1,710 million and increased again in 2025 to US$1,774 million. The relative stability of inventory levels, coupled with the fluctuations in cost of goods sold, contributes to the observed trend in the inventory turnover ratio.

The consistent decline in the inventory turnover ratio suggests a potential slowdown in the rate at which inventory is being converted into sales. Further investigation may be warranted to understand the underlying causes, such as changes in product mix, increased competition, or potential obsolescence of inventory.

The receivables turnover ratio exhibited fluctuations over the five-year period. While product sales remained relatively stable, accounts receivable and the resulting turnover ratio demonstrated some variability, suggesting shifts in the company’s credit and collection policies or changes in customer payment behavior.

Overall Trend

The receivables turnover ratio decreased from 6.01 in 2021 to 5.65 in 2022, indicating a lengthening of the collection period. It then experienced a slight recovery to 5.78 in 2023, followed by a more substantial increase to 6.47 in 2024. The most recent year, 2025, saw a decrease to 5.89.

Accounts Receivable

Accounts receivable, net, increased from US$4,493 million in 2021 to US$4,777 million in 2022, contributing to the initial decline in the receivables turnover ratio. It remained relatively stable through 2023 at US$4,660 million, before decreasing to US$4,420 million in 2024. A subsequent increase to US$4,913 million was observed in 2025.

Relationship to Product Sales

Product sales showed a modest decline between 2021 and 2023, remaining around US$26,900-27,000 million. A noticeable increase in product sales to US$28,610 million in 2024 coincided with the highest receivables turnover ratio during the period. The continued increase in product sales to US$28,915 million in 2025 did not maintain the high turnover ratio, suggesting other factors influenced collection efficiency.

The peak in receivables turnover in 2024 suggests improved efficiency in collecting receivables, potentially due to more stringent credit terms or more effective collection efforts. However, the subsequent decline in 2025, despite continued sales growth, warrants further investigation to determine the underlying cause. The fluctuations in accounts receivable levels appear to be a key driver of the observed changes in the receivables turnover ratio.

The accounts payable activity demonstrates fluctuations over the five-year period. A review of cost of goods sold and accounts payable reveals corresponding impacts on the calculated payables turnover ratio.

Payables Turnover Trend

The payables turnover ratio decreased from 9.36 in 2021 to 6.25 in 2022, indicating a lengthening of the time it takes to pay suppliers. A substantial increase followed in 2023, with the ratio rising to 11.81. This suggests a significantly faster rate of paying suppliers in that year. The ratio then decreased to 7.50 in 2024, and increased slightly to 8.72 in 2025.

Cost of Goods Sold Relationship

Cost of goods sold decreased from 2021 to 2022, coinciding with the initial decline in payables turnover. Cost of goods sold increased in 2023, which aligns with the subsequent increase in the payables turnover ratio. The cost of goods sold remained relatively stable between 2024 and 2025, while the payables turnover ratio experienced a slight increase.

Accounts Payable Relationship

Accounts payable increased from 2021 to 2022, contributing to the lower payables turnover. A significant decrease in accounts payable occurred in 2023, which contributed to the higher payables turnover ratio observed in that year. Accounts payable increased again in 2024, and decreased slightly in 2025.

Overall, the payables turnover ratio appears sensitive to changes in both cost of goods sold and accounts payable levels. The largest fluctuation occurred between 2022 and 2023, suggesting a potential shift in supplier payment strategies or negotiation terms during that period.

The working capital turnover ratio exhibited a declining trend over the observed period. Initially, the ratio stood at 8.54 in 2021, decreasing to 4.43 by 2025. This indicates a diminishing efficiency in utilizing working capital to generate product sales revenue.

Working Capital

Working capital increased from US$3,162 million in 2021 to US$4,805 million in 2023, representing a substantial rise. This growth continued to US$7,169 million in 2024 before decreasing slightly to US$6,529 million in 2025. The increase suggests a greater investment in short-term assets and liabilities.

Product Sales

Product sales remained relatively stable between 2021 and 2023, fluctuating around US$27 billion. A moderate increase was observed in 2024, reaching US$28,610 million, followed by a further increase to US$28,915 million in 2025. While sales increased, the rate of increase did not keep pace with the growth in working capital.

Working Capital Turnover Ratio – Trend Analysis

The ratio’s decline from 8.54 in 2021 to 3.99 in 2024 is particularly noteworthy. This suggests that, despite increasing product sales in 2024, the company required significantly more working capital to achieve that level of sales compared to 2021. The slight recovery to 4.43 in 2025 indicates a marginal improvement in efficiency, but the ratio remains considerably lower than its initial value. The increasing working capital base, coupled with relatively stable sales for the first three years, directly contributed to the observed decrease in turnover.

The observed trend warrants further investigation to determine the underlying causes. Potential factors could include changes in inventory management practices, accounts receivable collection periods, or accounts payable payment terms. A deeper analysis of these components of working capital is recommended to understand the drivers behind the declining turnover ratio.

An examination of the short-term operating activity reveals a consistent trend in inventory management over the five-year period. Specifically, the average inventory processing period demonstrates a gradual increase, while the inventory turnover ratio exhibits a corresponding decline.

Inventory Turnover

The inventory turnover ratio decreased from 4.08 in 2021 to 3.51 in 2025. While the decline was not substantial year-over-year, a consistent downward trajectory is apparent. The ratio decreased from 4.08 to 3.75 between 2021 and 2022, then continued to decrease to 3.64 in 2023. The rate of decline slowed between 2023 and 2024, with the ratio reaching 3.66, before resuming its downward trend to 3.51 in 2025.

Average Inventory Processing Period

The average inventory processing period increased steadily from 89 days in 2021 to 104 days in 2025. An increase of 97 days was recorded in 2022, followed by increases to 100 days in both 2023 and 2024. The period then increased further to 104 days in 2025. This indicates a lengthening of the time required to convert inventory into sales.

The observed trends suggest a potential slowing in the efficiency of inventory management. The decreasing inventory turnover ratio, coupled with the increasing average inventory processing period, implies that inventory is taking longer to sell. This could be due to a variety of factors, including changes in product mix, increased competition, or inefficiencies in the supply chain. Further investigation would be required to determine the underlying causes and potential implications.

The average receivable collection period exhibited fluctuations over the five-year period. While generally remaining within a narrow range, observable shifts indicate changes in the efficiency of collecting outstanding receivables.

Average Receivable Collection Period

The average receivable collection period increased from 61 days in 2021 to 65 days in 2022, suggesting a lengthening in the time required to collect receivables. A slight decrease to 63 days was noted in 2023. A more substantial decrease occurred in 2024, with the period falling to 56 days, indicating improved collection efficiency. However, the period increased again in 2025, returning to 62 days.

The observed changes in the average collection period appear to correlate inversely with the receivables turnover ratio. The increase in the collection period from 2021 to 2022 coincided with a decrease in receivables turnover. The improvement in 2024, reflected in the shorter collection period, was accompanied by a higher receivables turnover. The slight increase in the collection period in 2025 aligns with a corresponding decrease in the receivables turnover ratio.

Overall, the company demonstrates a generally stable, but not consistently improving, ability to convert receivables into cash. The fluctuations suggest potential influences from credit policies, customer payment behavior, or broader economic conditions. Further investigation into the underlying causes of these shifts may be warranted.

The operating cycle exhibited a generally increasing trend over the five-year period. While fluctuations occurred, the overall movement suggests a lengthening of the time required to convert raw materials into cash from sales.

Average Inventory Processing Period

The average inventory processing period demonstrated a consistent upward trend, increasing from 89 days in 2021 to 104 days in 2025. This indicates a gradual slowdown in the efficiency of inventory management, potentially due to increased inventory levels, slower production processes, or shifts in product mix towards items with longer production or storage times. The rate of increase appeared to stabilize between 2022 and 2024, before resuming an upward trajectory in 2025.

Average Receivable Collection Period

The average receivable collection period showed some variability. It increased from 61 days in 2021 to 65 days in 2022, then decreased to 56 days in 2024, before rising again to 62 days in 2025. The decrease in 2024 suggests improved efficiency in collecting receivables, potentially due to stricter credit policies or more effective collection efforts. However, the subsequent increase in 2025 partially offset this improvement.

Operating Cycle

The operating cycle, calculated as the sum of the average inventory processing period and the average receivable collection period, increased from 150 days in 2021 to 166 days in 2025. This increase largely mirrors the trend in the average inventory processing period, as the receivable collection period exhibited more fluctuation. The dip in the operating cycle in 2024 was driven by the reduction in the receivable collection period, but this effect was not sustained into 2025.

The lengthening operating cycle warrants further investigation. Potential causes could include changes in sales patterns, inventory management strategies, or credit terms offered to customers. Monitoring these trends is crucial for maintaining optimal working capital management and overall financial health.

The average payables payment period exhibited fluctuations over the five-year period. Initially, the period increased before decreasing and stabilizing. The payables turnover ratio, conversely, showed an inverse relationship, declining then increasing before decreasing again.

Average Payables Payment Period

The average payables payment period increased from 39 days in 2021 to 58 days in 2022, representing a 49% increase. This suggests a lengthening in the time taken to settle obligations to suppliers. Subsequently, a significant decrease was observed in 2023, falling to 31 days. This indicates improved efficiency in paying suppliers or a change in payment terms. The period then rose to 49 days in 2024 before settling at 42 days in 2025, suggesting a moderate increase followed by a slight correction.

Payables Turnover

Payables turnover decreased from 9.36 in 2021 to 6.25 in 2022, indicating a slower rate at which the company paid off its suppliers. This aligns with the observed increase in the average payables payment period. The ratio then increased substantially to 11.81 in 2023, coinciding with the decrease in the payment period. A subsequent decline to 7.50 in 2024 and a slight recovery to 8.72 in 2025 were noted, mirroring the fluctuations in the payment period.

The observed patterns suggest a dynamic relationship between the company’s payment practices and its supplier arrangements. The increase in the payment period in 2022, coupled with the decrease in payables turnover, could be attributed to strategic decisions to manage cash flow or potentially to negotiations with suppliers regarding extended payment terms. The subsequent reversal in 2023 suggests a return to more rapid payment cycles. The stabilization in 2024 and 2025 indicates a more consistent, though not necessarily optimal, approach to managing payables.

An examination of short-term operating activity ratios reveals evolving trends in the company’s working capital management between 2021 and 2025. The average inventory processing period, average receivable collection period, average payables payment period, and the resulting cash conversion cycle all demonstrate fluctuations over the five-year period.

Average Inventory Processing Period

The average inventory processing period exhibits a consistent upward trend, increasing from 89 days in 2021 to 104 days in 2025. This suggests a lengthening of the time required to convert raw materials into finished goods and ultimately sell them. The rate of increase appears to be accelerating in later years.

Average Receivable Collection Period

The average receivable collection period initially increased from 61 days in 2021 to 65 days in 2022, then decreased to 63 days in 2023 and further to 56 days in 2024. A slight increase to 62 days is observed in 2025. This indicates some volatility in the efficiency of collecting payments from customers, with a notable improvement in 2024 before a minor reversion in the final year.

Average Payables Payment Period

The average payables payment period shows the most significant fluctuation. It rose substantially from 39 days in 2021 to 58 days in 2022, then decreased to 31 days in 2023, increased again to 49 days in 2024, and settled at 42 days in 2025. This suggests a changing strategy or ability to negotiate payment terms with suppliers, or potentially reflects shifts in supplier relationships and credit availability.

Cash Conversion Cycle

The cash conversion cycle initially decreased from 111 days in 2021 to 104 days in 2022. However, it then increased significantly to 132 days in 2023, before decreasing to 107 days in 2024 and increasing again to 124 days in 2025. The cycle’s movement is largely influenced by the combined effects of the inventory processing period and payables payment period, with the 2023 peak coinciding with a short payables period and a lengthening inventory period. The 2025 value indicates a return to a longer cycle than observed in 2022 and 2024.

Overall, the company’s cash conversion cycle demonstrates instability over the period. While there were periods of improvement, the trend towards the end of the period suggests a potential need to review working capital management strategies, particularly concerning inventory turnover and supplier payment terms.