Eli Lilly & Co. (NYSE:LLY)

An examination of short-term operating activity ratios reveals several notable trends between 2021 and 2025. Generally, the company demonstrates decreasing efficiency in managing its inventory and accounts payable, while receivables management shows some fluctuation but a slight overall decline. Working capital turnover exhibits significant volatility.

Inventory Management

Inventory turnover consistently decreased from 1.88 in 2021 to 0.80 in 2025. This indicates a growing inefficiency in converting inventory into sales. Correspondingly, the average inventory processing period lengthened substantially, increasing from 194 days in 2021 to 454 days in 2025. This suggests inventory is being held for increasingly longer periods, potentially due to slowing sales, overstocking, or obsolescence.

Receivables Management

Receivables turnover experienced a moderate decline from 4.24 in 2021 to 3.67 in 2025. The average receivable collection period increased from 86 days to 99 days over the same period, indicating a slight lengthening in the time required to collect payments from customers. While not as dramatic as the inventory trends, this suggests a potential weakening in credit control or a shift towards less creditworthy customers.

Payables Management

Payables turnover decreased significantly from 4.38 in 2021 to 2.05 in 2025. This signifies a slower rate of paying suppliers. The average payables payment period increased from 83 days to 178 days, indicating the company is taking longer to settle its obligations. This could be a deliberate strategy to preserve cash, but prolonged increases may strain supplier relationships.

Working Capital Turnover

Working capital turnover displayed substantial fluctuation. It rose dramatically from 8.33 in 2021 to 31.84 in 2022, before becoming unavailable for 2023, then decreasing to 10.32 in 2024 and finally to 3.19 in 2025. This volatility suggests significant changes in the relationship between sales and working capital, potentially linked to shifts in operational strategies or external economic factors. The decline from 2022 to 2025 indicates a less efficient utilization of working capital.

Operating and Cash Cycles

Both the operating cycle and the cash conversion cycle lengthened considerably throughout the period. The operating cycle increased from 280 days in 2021 to 553 days in 2025, reflecting the combined effect of slower inventory turnover and longer receivable collection periods. The cash conversion cycle increased from 197 days to 375 days, driven by the extended payables payment period alongside the lengthening operating cycle. These increases suggest a growing time lag between investing in inventory and receiving cash from sales.

An examination of the provided financial information reveals a consistent decline in inventory turnover over the five-year period from 2021 to 2025. This trend is accompanied by increases in both the cost of sales and inventory levels.

Inventory Turnover

The inventory turnover ratio decreased steadily from 1.88 in 2021 to 0.80 in 2025. This indicates a lengthening of the time it takes to sell inventory. A ratio of 0.80 suggests that, on average, inventory is held for more than a year before being sold.

The cost of sales experienced fluctuations, initially decreasing from US$7,313 million in 2021 to US$6,630 million in 2022, before increasing to US$7,082 million in 2023. More substantial growth is then observed, reaching US$8,418 million in 2024 and further increasing to US$11,052 million in 2025. This suggests increasing production or sales volume in later years, despite the declining turnover ratio.

Inventories

Inventory levels have risen consistently throughout the period. Starting at US$3,886 million in 2021, inventories increased to US$4,310 million in 2022, US$5,773 million in 2023, US$7,589 million in 2024, and reached US$13,744 million in 2025. This increase in inventory, coupled with the declining turnover ratio, suggests a potential build-up of unsold goods.

The combined effect of rising inventory and decreasing turnover suggests potential inefficiencies in inventory management. Further investigation may be warranted to determine the reasons for the slower inventory movement, such as changes in product mix, increased competition, or potential obsolescence of inventory.

An examination of the provided financial information reveals trends in receivables turnover over a five-year period. Revenue demonstrated consistent growth throughout the period, while accounts receivable also increased, though the rate of increase varied. The receivables turnover ratio, however, did not consistently increase with revenue.

Receivables Turnover Trend

The receivables turnover ratio exhibited a slight decrease from 4.24 in 2021 to 4.14 in 2022. A more pronounced decline was observed in 2023, falling to 3.75. The ratio experienced a modest recovery to 4.09 in 2024, but subsequently decreased again to 3.67 in 2025. This suggests a lengthening of the collection period over the observed timeframe, despite increasing sales.

The growth in revenue outpaced the growth in accounts receivable in the earlier years (2021-2022), contributing to a stable, albeit slightly decreasing, turnover ratio. However, from 2022 onwards, the growth rate of accounts receivable began to accelerate, particularly in 2024 and 2025, while the receivables turnover ratio experienced a more significant decline. This indicates that the company is taking longer to collect on its credit sales as revenue increases.

Revenue and Accounts Receivable Relationship

Revenue increased substantially from US$28.318 billion in 2021 to US$65.179 billion in 2025, representing a significant expansion of sales. Accounts receivable also increased, moving from US$6.673 billion in 2021 to US$17.760 billion in 2025. While a positive correlation exists between the two, the decreasing receivables turnover ratio suggests that the company’s credit and collection policies, or the creditworthiness of its customers, may be impacting the efficiency of converting receivables into cash.

The observed trend in receivables turnover warrants further investigation. Potential areas of inquiry include changes in credit terms offered to customers, the composition of the customer base, and the effectiveness of collection efforts. A declining ratio could indicate increased risk of bad debts or a need to optimize working capital management.

The accounts payable turnover ratio demonstrates a consistent decline over the five-year period. This indicates a lengthening of the time it takes the company to pay its suppliers. Simultaneously, both cost of sales and accounts payable have generally increased, though the rate of increase differs.

Payables Turnover Trend

The payables turnover ratio decreased from 4.38 in 2021 to 2.05 in 2025. The most significant decline occurred between 2022 and 2023, falling from 3.43 to 2.73. The rate of decline slowed between 2023 and 2024, and again between 2024 and 2025, but the overall trend remains downward.

Cost of Sales and Accounts Payable Relationship

Cost of sales decreased from 2021 to 2022, coinciding with a rise in accounts payable. From 2022 onward, cost of sales generally increased, and accounts payable followed suit, though at a slower pace initially. The increase in accounts payable appears to be insufficient to maintain the same rate of turnover observed in earlier periods.

Implications of Declining Turnover

A decreasing payables turnover ratio could suggest the company is taking advantage of extended payment terms offered by suppliers, potentially to improve cash flow. Alternatively, it could indicate a growing difficulty in meeting payment obligations, though this is less likely given the concurrent increase in accounts payable. Further investigation into payment terms and supplier relationships would be necessary to determine the underlying cause.

The increasing accounts payable balance, coupled with the declining turnover, suggests a shift in the company’s payment practices or a change in the timing of purchases relative to payments. The substantial increase in cost of sales in 2025, alongside a continued decline in payables turnover, warrants further scrutiny to assess potential impacts on supplier relationships and working capital management.

The working capital turnover ratio exhibits considerable fluctuation over the observed period. Initial values indicate a low turnover, followed by a substantial increase, then a period of unavailable information, and finally a return to more moderate levels, concluding with a notable decline.

Working Capital Trend

Working capital demonstrates a dramatic shift from a positive value of US$3,400 million in 2021 to a negative value of US$1,566 million in 2022. This is followed by a recovery to US$4,363 million in 2023 and a significant increase to US$20,401 million by 2025. These movements suggest substantial changes in the company’s short-term asset and liability management.

Revenue Trend

Revenue shows a consistent upward trend throughout the period. It increases from US$28,318 million in 2021 to US$65,179 million in 2025, indicating strong sales growth. The rate of revenue increase accelerates between 2023 and 2025.

Working Capital Turnover – 2021-2022

The working capital turnover ratio increased significantly from 8.33 in 2021 to 31.84 in 2022. This increase, coinciding with a substantial decrease in working capital, suggests a more efficient utilization of short-term assets and liabilities in generating revenue during 2022. However, the negative working capital in 2022 warrants further investigation to understand the underlying causes and potential risks.

Working Capital Turnover – 2023-2025

The ratio is unavailable for 2023. In 2024, the working capital turnover ratio decreased to 10.32, despite continued revenue growth. This suggests that while revenue increased, the level of working capital required to support that revenue also increased, leading to a lower turnover. By 2025, the ratio further declined to 3.19, indicating a substantial decrease in the efficiency of working capital utilization relative to revenue. This decline occurs alongside a significant increase in working capital, suggesting a potential build-up of short-term assets or a slowdown in converting those assets into sales.

Overall, the observed trends suggest a complex relationship between working capital, revenue, and operational efficiency. The fluctuations in the working capital turnover ratio require further investigation to determine the underlying drivers and assess their impact on the company’s financial performance.

An examination of the provided financial information reveals a consistent lengthening of the average inventory processing period alongside a declining inventory turnover ratio over the five-year period. These trends suggest a growing inefficiency in managing inventory.

Inventory Turnover

The inventory turnover ratio decreased steadily from 1.88 in 2021 to 0.80 in 2025. This indicates that the company is selling its inventory at a slower rate each year. A ratio of 0.80 suggests that inventory is built up faster than it is sold, potentially leading to increased storage costs, obsolescence, and tied-up capital.

Average Inventory Processing Period

The average inventory processing period increased significantly from 194 days in 2021 to 454 days in 2025. This lengthening period directly corresponds with the declining inventory turnover. The substantial increase suggests that inventory is taking considerably longer to be converted into sales. This could be due to a variety of factors, including overstocking, slower sales, issues with product mix, or inefficiencies in the supply chain. The period exceeding 450 days in 2025 is particularly noteworthy and warrants further investigation.

The combined trends of decreasing inventory turnover and increasing average inventory processing period indicate a potential deterioration in inventory management effectiveness. Continued monitoring and analysis are recommended to identify the root causes and implement corrective actions to optimize inventory levels and improve operational efficiency.

The average receivable collection period exhibited an increasing trend over the observed five-year period, although with some fluctuation. Receivables turnover demonstrated a corresponding, though less pronounced, pattern. These movements suggest potential shifts in the company’s credit policies, customer payment behavior, or the composition of its sales.

Average Receivable Collection Period

The average receivable collection period increased from 86 days in 2021 to 88 days in 2022, representing a slight lengthening of the time required to collect receivables. A more substantial increase was observed in 2023, reaching 97 days. This was followed by a decrease to 89 days in 2024, but the period extended again to 99 days in 2025, marking the highest value within the analyzed timeframe. This overall upward trend indicates a growing delay in receiving payments from customers.

Receivables Turnover

Receivables turnover decreased from 4.24 in 2021 to 4.14 in 2022, indicating a slower rate of converting receivables into cash. A further decline to 3.75 in 2023 suggests a continued slowdown. The ratio improved slightly to 4.09 in 2024, but decreased again to 3.67 in 2025, the lowest value observed. This pattern is consistent with the increasing average collection period, as a lower turnover ratio implies that receivables are outstanding for a longer duration.

Relationship between Ratios

The inverse relationship between the average receivable collection period and receivables turnover is evident. As the collection period increases, the turnover ratio decreases, and vice versa. This confirms that the company is taking longer to collect its receivables, which is reflected in a reduced rate of converting them into cash. The fluctuations in both metrics suggest that external factors or internal policy changes may be influencing the company’s ability to efficiently manage its receivables.

Further investigation into the underlying causes of these trends is recommended. This could include an analysis of credit terms offered to customers, the aging of receivables, and any changes in the company’s customer base or industry conditions.

The operating cycle has exhibited a consistent lengthening trend over the five-year period. Each component contributing to the operating cycle – average inventory processing period and average receivable collection period – has also demonstrated directional changes, contributing to the overall trend.

Average Inventory Processing Period

The average inventory processing period has increased substantially from 194 days in 2021 to 454 days in 2025. This represents a more than doubling of the time required to convert inventory into finished goods and make them available for sale. The increase was gradual from 2021 to 2023, accelerating significantly between 2023 and 2025. This suggests potential inefficiencies in inventory management, production processes, or increasing inventory levels.

Average Receivable Collection Period

The average receivable collection period showed a modest increase from 86 days in 2021 to 99 days in 2025. While generally stable, a slight increase was observed from 2021 to 2022, followed by a further increase to 97 days in 2023, a slight decrease in 2024, and then a final increase in 2025. This indicates a lengthening of the time it takes to collect payments from customers, potentially due to changes in credit terms, customer payment behavior, or collection efforts.

Operating Cycle

The operating cycle, calculated as the sum of the average inventory processing period and the average receivable collection period, has increased from 280 days in 2021 to 553 days in 2025. This lengthening cycle indicates that the company is taking progressively longer to convert its investments in inventory into cash from sales. The most significant increase occurred between 2023 and 2025, mirroring the accelerated increase in the average inventory processing period. This extended cycle ties up working capital for a longer duration and could potentially impact liquidity.

The combined effect of increasing inventory processing and receivable collection periods has resulted in a substantial lengthening of the operating cycle. Further investigation into the drivers behind the increasing inventory processing period is warranted, as it appears to be the primary contributor to the overall trend.

The average payables payment period exhibited a consistent upward trend over the five-year period. Simultaneously, the payables turnover ratio demonstrated a corresponding downward trend. These movements suggest a lengthening in the time taken to settle outstanding obligations to suppliers.

Payables Turnover

The payables turnover ratio decreased from 4.38 in 2021 to 2.05 in 2025. This indicates a declining efficiency in managing and paying off supplier invoices. The rate of decline appeared to moderate between 2022 and 2023, but continued through 2025.

Average Payables Payment Period

The average payables payment period increased steadily from 83 days in 2021 to 178 days in 2025. This signifies that the company is taking progressively longer to pay its suppliers. The increase was relatively consistent year-over-year, with a slight acceleration in the later years of the observed period.

Relationship between Ratios

The inverse relationship between the payables turnover and the average payables payment period is expected. A lower payables turnover directly results in a higher average payment period, and vice versa. The observed trends confirm this relationship, suggesting a deliberate or consequential shift in payment practices or supplier negotiations.

The extended payment period could be attributable to several factors, including improved negotiation terms with suppliers, a strategic decision to conserve cash, or potentially, increasing difficulties in meeting payment obligations. Further investigation would be required to determine the underlying cause of these trends.

An examination of short-term operating activity ratios reveals lengthening cycles across key components from 2021 to 2025. The average inventory processing period, average receivable collection period, and average payables payment period all demonstrate increases over the five-year period, contributing to a significantly extended cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period exhibits a consistent upward trend, increasing from 194 days in 2021 to 454 days in 2025. This indicates a growing length of time required to convert raw materials into finished goods and ultimately sell them. The most substantial increase occurs between 2023 and 2025, suggesting a potential slowdown in inventory turnover or a build-up of inventory levels during that period.

Average Receivable Collection Period

The average receivable collection period shows a moderate increase over the period, rising from 86 days in 2021 to 99 days in 2025. While not as dramatic as the change in inventory processing, this suggests a lengthening of the time it takes to collect payments from customers. A slight dip is observed in 2024, but the trend resumes upward in the final year.

Average Payables Payment Period

The average payables payment period demonstrates a steady increase, moving from 83 days in 2021 to 178 days in 2025. This indicates that the company is taking longer to pay its suppliers. The rate of increase accelerates in the later years of the period, potentially reflecting a strategy to preserve cash or negotiate extended payment terms with vendors.

Cash Conversion Cycle

The cash conversion cycle, representing the time it takes to convert investments in inventory and other resources into cash flows from sales, has increased substantially. Starting at 197 days in 2021, it reaches 375 days in 2025. This lengthening cycle is a direct result of the increases observed in the inventory processing period and receivable collection period, partially offset by the increasing payables payment period. The most significant increase in the cash conversion cycle occurs between 2024 and 2025, indicating a substantial tie-up of working capital during that timeframe.

Collectively, these trends suggest a growing inefficiency in the company’s working capital management. The extended cash conversion cycle implies that a greater proportion of capital is tied up in operating assets for longer periods, potentially impacting liquidity and requiring increased financing to support operations.