Eli Lilly & Co. (NYSE:LLY)

A review of short-term operating activity ratios reveals several notable trends over the observed period. Generally, a decline in efficiency metrics is apparent, particularly in the more recent quarters. Inventory management appears to be slowing, while receivables and payables turnover rates have also decreased. These shifts are reflected in lengthening processing, collection, and payment periods, ultimately impacting the cash conversion cycle.

Inventory Turnover

Inventory turnover consistently decreased from 1.93 in March 2022 to 0.80 in December 2025. This indicates a growing inefficiency in converting inventory into sales, potentially suggesting overstocking, obsolescence, or weakening demand. The average inventory processing period correspondingly increased from 189 days to 454 days over the same timeframe, reinforcing this observation.

Receivables Turnover & Collection Period

Receivables turnover exhibited a decreasing trend, falling from 4.64 in March 2022 to 3.67 in December 2025. While there were some fluctuations, the overall direction is downward. This is mirrored by an increase in the average receivable collection period, rising from 79 days to 99 days. This suggests a lengthening of the time required to collect payments from customers, potentially indicating deteriorating credit quality or less effective collection practices.

Payables Turnover & Payment Period

Payables turnover also demonstrated a declining trend, decreasing from 5.24 in March 2022 to 2.05 in December 2025. The average payables payment period increased significantly, from 70 days to 178 days. This could indicate a deliberate strategy to conserve cash by delaying payments to suppliers, or it may reflect increasing difficulty in meeting payment obligations. However, the magnitude of the increase warrants further investigation.

Working Capital Turnover

Working capital turnover displayed considerable volatility. A peak was observed in December 2022 (31.84), followed by a decline and subsequent fluctuations. The most recent values (March 2025 - December 2025) are considerably lower than earlier periods, suggesting a less efficient utilization of working capital. This is likely influenced by the trends observed in inventory, receivables, and payables.

Operating & Cash Conversion Cycles

Both the operating cycle and the cash conversion cycle lengthened substantially throughout the period. The operating cycle increased from 268 days to 553 days, while the cash conversion cycle rose from 198 days to 375 days. These increases are consistent with the observed trends in inventory processing, receivable collection, and payable payment periods, indicating a longer time frame between investing in inventory and receiving cash from sales. The cash conversion cycle’s increase suggests a growing need for working capital financing.

In summary, the observed trends suggest a deterioration in short-term operating efficiency. The company appears to be taking longer to sell inventory, collect receivables, and is simultaneously delaying payments to suppliers. These factors contribute to a lengthening cash conversion cycle and potentially increased working capital requirements. Further investigation is recommended to understand the underlying causes of these trends and to assess their impact on overall financial performance.

Inventory turnover exhibited a consistent downward trend over the observed period, spanning from March 31, 2022, to December 31, 2025. Initially, the ratio fluctuated around the 1.8 to 1.9 range, but progressively declined to reach 0.80 by the end of the analyzed timeframe. This suggests a lengthening of the time it takes to sell inventory.

Initial Period (Mar 31, 2022 – Dec 31, 2022)

The inventory turnover ratio began at 1.93 and decreased to 1.54. While a decline is present, the ratio remained above 1.5, indicating relatively efficient inventory management during this period. Cost of sales demonstrated seasonal fluctuations, with lower values in June and December, while inventory levels remained relatively stable.

Transitional Phase (Mar 31, 2023 – Dec 31, 2023)

The ratio continued its downward trajectory, falling from 1.36 to 1.23. Inventory levels began to increase more noticeably, particularly towards the end of the year, reaching 5,773 US$ in millions. Cost of sales also showed some increase, but not at the same rate as inventory.

Accelerated Decline (Mar 31, 2024 – Dec 31, 2025)

A more pronounced decrease in inventory turnover occurred during this phase, dropping from 1.17 to 0.80. Inventory levels experienced substantial growth, rising from 6,102 US$ in millions to 13,744 US$ in millions. Simultaneously, cost of sales increased, but the rate of inventory accumulation outpaced the rate of sales, resulting in the declining turnover ratio. The most significant inventory build-up occurred between March 31, 2025, and December 31, 2025.

The consistent decline in inventory turnover, coupled with the increasing inventory levels, warrants further investigation. Potential factors contributing to this trend could include shifts in demand, changes in production strategies, or potential obsolescence of inventory. The increasing inventory levels, without a corresponding increase in sales, could also indicate potential challenges in managing working capital and could impact profitability.

The receivables turnover ratio exhibits fluctuations over the observed period, generally indicating a decreasing trend in the efficiency of collecting receivables, though with some quarterly variations. Initial values demonstrate a relatively stable turnover, followed by a noticeable decline and subsequent partial recovery.

Overall Trend

From March 31, 2022, to December 31, 2025, the receivables turnover ratio generally decreased. The ratio began at 4.64 and concluded at 3.67. This suggests a lengthening of the average collection period for accounts receivable over the period.

Initial Period (Mar 31, 2022 – Dec 31, 2022)

The receivables turnover ratio experienced a gradual decline from 4.64 in March 2022 to 4.14 in December 2022. While still above 4.0, this represents a consistent reduction in the speed at which receivables are converted into cash. This period coincided with fluctuating revenue figures.

Significant Decline (Mar 31, 2023 – Dec 31, 2023)

A more pronounced decrease occurred between March 2023 and December 2023, with the ratio falling from 3.68 to 3.75. This period saw increases in both revenue and accounts receivable, but the growth in receivables outpaced revenue growth, resulting in the lower turnover.

Partial Recovery & Subsequent Stability (Mar 31, 2024 – Dec 31, 2025)

The ratio showed a slight increase to 4.56 in March 2024, before declining again to 3.67 by December 2025. Despite significant revenue increases in the latter part of the period, the accounts receivable balance also increased substantially, preventing a substantial improvement in the turnover ratio. The ratio stabilized in the 3.67-4.09 range during this period.

Correlation with Revenue

While revenue generally increased over the observed period, the receivables turnover ratio did not consistently follow suit. This suggests that changes in credit policies, collection efforts, or the composition of customers may be influencing the collection period, independent of sales volume. The increasing accounts receivable balance, even with rising revenue, indicates a potential slowdown in collecting payments.

In conclusion, the receivables turnover ratio suggests a weakening in the company’s ability to efficiently convert receivables into cash. Further investigation into the underlying causes of this trend, such as changes in credit terms or collection practices, is warranted.

The accounts payable turnover ratio demonstrates a consistent downward trend over the observed period, spanning from March 31, 2022, to December 31, 2025. Initially, the ratio exhibited values above 4.0, but it progressively declined, reaching a low of 2.05 by the end of the analyzed timeframe. This suggests a lengthening of the time it takes the company to pay its suppliers.

Initial Period (Mar 31, 2022 – Dec 31, 2022)

The payables turnover ratio began at 5.24 and decreased to 3.43. This initial decline could be attributed to a variety of factors, including increased purchasing volume, changes in supplier credit terms, or a deliberate strategy to extend payment cycles to improve cash flow. The cost of sales fluctuated during this period, while accounts payable generally increased.

Transitional Phase (Mar 31, 2023 – Dec 31, 2023)

The ratio continued its downward trajectory, moving from 3.07 to 2.73. The decrease, while present, was less pronounced than in the prior period. Both cost of sales and accounts payable experienced increases, but the growth in accounts payable outpaced that of cost of sales, contributing to the lower turnover.

Recent Trend (Mar 31, 2024 – Dec 31, 2025)

The most significant decline occurred in this phase, with the ratio falling from 2.88 to 2.05. Accounts payable consistently increased, notably accelerating in the latter quarters, while cost of sales also rose, but at a slower rate. This widening gap between accounts payable and cost of sales is the primary driver of the reduced turnover. The increase in accounts payable suggests either increased reliance on supplier credit or a build-up of outstanding obligations.

The observed trend warrants further investigation. While a lower payables turnover can indicate effective cash management through extended payment terms, a continued decline could also signal potential issues with supplier relationships or difficulties in meeting payment obligations. The increasing accounts payable balance, coupled with the decreasing turnover, should be monitored closely to assess its impact on the company’s financial health.

The working capital turnover ratio exhibits considerable fluctuation over the observed period, spanning from March 31, 2022, to December 31, 2025. Initial values demonstrate a generally decreasing trend from 8.19 to 5.45 over the first year, followed by periods of increase and subsequent decline.

Initial Period (Mar 31, 2022 – Dec 31, 2022)

The ratio begins at 8.19 and experiences significant volatility, peaking at 31.84 by December 31, 2022. This suggests a substantial increase in the efficiency of working capital utilization during this period, potentially driven by effective inventory management or accelerated collection of receivables. However, this is coupled with a large decrease in working capital itself.

2023 Performance (Mar 31, 2023 – Dec 31, 2023)

The ratio declines to 5.77 in March 2023, indicating a reduced efficiency in utilizing working capital. It then recovers to 31.79 in September 2023, before becoming unavailable for December 2023. This period shows a strong correlation between revenue and working capital turnover, with the ratio peaking alongside revenue.

Recent Trends (Mar 31, 2024 – Dec 31, 2025)

The ratio settles at 5.45 in March 2024, followed by a rise to 12.62 in June 2024. A subsequent decrease to 6.06 in September 2024 is observed, followed by a slight increase to 10.32 in December 2024. The final two periods show a continuing downward trend, with the ratio falling to 4.38, 4.92, 2.71, and finally 3.19. This recent decline suggests a potential slowdown in the efficiency of working capital management, or a disproportionate increase in working capital relative to revenue. The significant drop in the final two periods warrants further investigation.

Overall, the working capital turnover ratio demonstrates a lack of consistent direction. While periods of high turnover are present, the recent trend indicates a potential weakening in the relationship between revenue generation and working capital utilization. The negative working capital value in December 2022 and December 2023 is also noteworthy and may require further scrutiny to understand its implications for the company’s financial health.

The average inventory processing period exhibits a clear upward trend over the observed timeframe. Initially, the period fluctuated around 189 to 204 days in the first four quarters of 2022. However, a consistent increase is evident from the beginning of 2023 through the end of 2025.

Overall Trend

From March 31, 2022, to December 31, 2025, the average inventory processing period increased from 189 days to 454 days. This represents a substantial lengthening of the time required to convert inventory into sales.

2022 Performance

The average inventory processing period in 2022 demonstrated some variability, ranging from a low of 189 days in the first quarter to a high of 237 days in the fourth quarter. This suggests potential seasonal effects or fluctuations in demand during the year.

2023-2024 Progression

The period began a sustained climb in 2023, increasing from 268 days in the first quarter to 316 days in the second quarter of 2024. The rate of increase appeared relatively consistent during this period.

2025 Acceleration

The rate of increase in the average inventory processing period accelerated in 2025. The period rose from 379 days in the first quarter to 454 days by the end of the year, indicating a potentially worsening trend in inventory management efficiency.

The lengthening of the average inventory processing period warrants further investigation. Potential contributing factors could include decreased sales velocity, increased inventory levels, supply chain disruptions, or changes in inventory management strategies. A prolonged period of increasing processing time could indicate potential risks related to obsolescence, storage costs, and tied-up capital.

The average receivable collection period exhibited fluctuations over the observed timeframe. Initially, the period demonstrated a gradual increasing trend from 79 days in March 2022 to 88 days by December 2022. This was followed by a decrease to 80 days in March 2023, before increasing again to 97 days in June 2023 and remaining relatively stable at 99 days through December 2025.

Initial Increase (Mar 31, 2022 – Dec 31, 2022)

The average collection period increased by nine days over this period, suggesting a potential lengthening in the time required to collect receivables. This could be attributable to changes in credit policies, customer payment behavior, or the composition of sales.

Subsequent Fluctuations (Mar 31, 2023 – Dec 31, 2025)

Following the initial increase, the collection period decreased slightly in March 2023, but then rose to a peak of 99 days and remained at that level for the final three quarters of the analyzed period. This sustained period of approximately 99 days suggests a stabilization of collection practices or a consistent delay in customer payments. The period experienced a peak of 103 days in June 2024, but quickly reverted to 92 days in September 2024.

Overall, the average receivable collection period demonstrates a cyclical pattern with an initial upward trend, followed by volatility, and a final stabilization at a higher level than the beginning of the period. The consistent collection period of approximately 99 days in the latter part of the timeframe warrants further investigation to determine the underlying causes and potential implications for cash flow management.

Long-Term Trend

Compared to the initial value of 79 days in March 2022, the average collection period increased to 99 days by December 2025, representing an overall increase of 20 days. This indicates a potential shift in the efficiency of collecting receivables over the long term.

The operating cycle has demonstrated a generally increasing trend over the observed period, spanning from March 31, 2022, to December 31, 2025. Both components of the operating cycle – average inventory processing period and average receivable collection period – contribute to this lengthening cycle, though to varying degrees.

Average Inventory Processing Period

The average inventory processing period exhibits a consistent upward trajectory. Starting at 189 days in March 2022, it steadily increased, reaching 454 days by December 2025. Notable accelerations in this increase occurred between March 2023 and March 2024, and again between September 2024 and December 2025. This suggests a potential slowdown in inventory turnover or an increase in the time required to convert inventory into finished goods. Fluctuations are present, but the overall trend is definitively upward.

Average Receivable Collection Period

The average receivable collection period also shows an increasing trend, though less pronounced than that of the inventory processing period. Beginning at 79 days in March 2022, it rose to 99 days by December 2025. A significant increase is observed between March 2022 and December 2022, followed by a slight decrease in the first half of 2023. The period then stabilizes around 90-100 days for much of 2023 and 2024, before concluding with a consistent 99 days in the final two quarters of 2025. This indicates a lengthening of the time required to collect payments from customers.

Operating Cycle

As a result of the increases in both inventory processing and receivable collection periods, the overall operating cycle has lengthened considerably. From 268 days in March 2022, it has risen to 553 days by December 2025. The most substantial increases occurred between March 2024 and June 2025, and between June 2025 and December 2025, mirroring the accelerated increases observed in the inventory processing period. This extended cycle implies that the company is taking longer to convert its investments in inventory and receivables into cash.

The consistent increases in both components of the operating cycle warrant further investigation. Potential causes could include changes in credit policies, inventory management practices, product mix, or overall market conditions. The lengthening cycle could potentially impact cash flow and require adjustments to working capital management strategies.

The average payables payment period exhibited a generally increasing trend over the observed period, spanning from March 31, 2022, to December 31, 2025. While fluctuations occurred, the overall movement indicates a lengthening in the time taken to settle outstanding obligations to suppliers.

Initial Period (Mar 31, 2022 – Dec 31, 2022)

The average payables payment period began at 70 days in March 2022 and steadily increased to 106 days by the end of December 2022. This represents a substantial rise within a relatively short timeframe, suggesting a potential shift in payment practices or negotiating longer payment terms with suppliers.

Continued Increase (Mar 31, 2023 – Jun 30, 2024)

The upward trend continued into the first half of 2023, peaking at 161 days in June 2023. The period then experienced a slight decrease to 142 days in June 2024, but remained elevated compared to the initial values observed in 2022. This suggests the extended payment periods were not merely a temporary anomaly.

Recent Period (Sep 30, 2024 – Dec 31, 2025)

From September 2024 through December 2025, the average payables payment period fluctuated, ending at 178 days. This represents the highest value recorded throughout the entire period, indicating a continued tendency towards longer settlement times. The period has remained above 150 days for the last four quarters.

Relationship to Payables Turnover

The increase in the average payables payment period is inversely related to the payables turnover ratio. The payables turnover ratio decreased consistently from 5.24 in March 2022 to 2.05 in December 2025. This confirms that the company is taking longer to pay its suppliers, as reflected in the increasing payment period.

In summary, the company has demonstrably extended its payment terms to suppliers over the analyzed period. This could be a strategic decision to manage cash flow, but should be monitored for potential impacts on supplier relationships and potential loss of early payment discounts.

The short-term operating activity of the company, as measured by its cash conversion cycle and component ratios, demonstrates notable shifts over the observed period. A general trend of lengthening cycle times is apparent, particularly in the latter half of the analyzed timeframe. This suggests increasing tie-up of cash within the operating cycle.

Average Inventory Processing Period

The average time to process inventory exhibits a consistent upward trend. Starting at 189 days in March 2022, it steadily increased, reaching 454 days by December 2025. This indicates a growing period for converting raw materials into finished goods and subsequently selling them. The most significant increases occurred between March 2023 and June 2025, suggesting potential challenges in inventory management or shifts in production and sales strategies. Fluctuations are present, but the overall trajectory is clearly increasing.

Average Receivable Collection Period

The average number of days to collect receivables also shows an increasing trend, though with more variability than the inventory processing period. From 79 days in March 2022, it rose to 99 days by December 2025, with a peak of 103 days in June 2024. This suggests a lengthening of the time required to convert sales into cash. The increase is not linear, with some quarters showing stabilization or slight decreases, but the overall trend points to a slower collection process.

Average Payables Payment Period

The average time taken to pay suppliers has increased substantially throughout the period. Beginning at 70 days in March 2022, it reached 178 days by December 2025. This indicates the company is taking longer to settle its obligations to suppliers. The most pronounced increases occurred between March 2023 and December 2025, potentially reflecting a deliberate strategy to manage cash flow or changes in supplier terms.

Cash Conversion Cycle

The cash conversion cycle, representing the total time cash is tied up in the operating cycle, has generally increased. Starting at 198 days in March 2022, it peaked at 386 days in September 2025 before decreasing slightly to 375 days in December 2025. This increase is driven by the combined effects of the lengthening inventory processing period, receivable collection period, and payables payment period. The cycle’s expansion suggests a need to evaluate operational efficiencies and working capital management strategies to optimize cash flow.

In summary, the observed trends indicate a growing cash conversion cycle, driven by increases in all its component parts. While an extended payables period may offer short-term cash flow benefits, the overall lengthening of the cycle warrants attention to ensure efficient working capital management and avoid potential liquidity concerns.