Johnson & Johnson (NYSE:JNJ)

Inventory Turnover

The inventory turnover ratio has exhibited a gradual decline over the observed periods, starting near 2.86 and trending downward to approximately 2.08 by the most recent quarter. This suggests a slowdown in how frequently inventory is sold and replaced, potentially indicating either rising inventory levels or slower sales activity.

Receivables Turnover

The receivables turnover ratio showed some fluctuations but generally exhibits a slight downward trend from around 6.14 to approximately 5.23 over the series. This indicates a marginal elongation in the time customers take to pay, suggesting a possible easing in credit collection efficiency or changes in credit terms.

Payables Turnover

The payables turnover ratio has been somewhat variable without a clear directional trend, oscillating between roughly 2.66 and 3.34. This reflects a fluctuating payment behavior toward suppliers, with periods of faster and slower payment.

Working Capital Turnover

Working capital turnover shows significant volatility, particularly with extraordinary spikes in some quarters, such as values exceeding 200 and even approaching 285 in later periods. These pronounced fluctuations could indicate anomalous operational events or changes in working capital management policy impacting efficiency metrics.

Average Inventory Processing Period

The average inventory processing period is on an increasing trajectory, moving from approximately 125 days to nearly 176 days. This increase points toward slower inventory movement and a lengthening time to clear stock, consistent with the declining inventory turnover ratio.

Average Receivable Collection Period

The average receivable collection period has slightly increased across the periods, from around 59-60 days to closer to 70 days. This supports the observation of a slower receivables turnover, reflecting longer durations to collect customer payments.

Operating Cycle

The operating cycle, aggregating inventory processing and receivable collection, shows a steady lengthening, increasing from approximately 186 days to around 246 days. This trend indicates a longer time for the conversion of inventory and receivables into cash.

Average Payables Payment Period

The average payables payment period has fluctuated between approximately 108 and 137 days, without a clear sustained trend upwards or downwards. Periods of extended payment terms are followed by more rapid payments, signaling variable supplier payment behaviors.

Cash Conversion Cycle

The cash conversion cycle has generally increased, starting from about 51 days in one of the earlier quarters and rising to approximately 127 days by the last period. This indicates a lengthening delay in converting investments in inventory and other resources back into cash flows, which can affect liquidity position and operational efficiency.

The analysis of the quarterly financial data reveals several notable trends in cost of products sold, inventories, and inventory turnover over the observed periods.

Cost of Products Sold

The cost of products sold exhibited fluctuations throughout the quarters. Initially, there was a general increase from April 2021 through December 2021, peaking near the end of that year. Subsequently, the values show a decline in early 2023, followed by a gradual rise again approaching late 2024. However, recent quarters indicate a slight decrease by mid-2025. Overall, the cost of goods sold demonstrates variability with cyclical changes but no consistent upward or downward trend in the longer term.

Inventories

Inventories steadily increased across the entire timeframe. From just under 10,000 million USD in early 2021, inventory levels rose continuously, reaching over 14,000 million USD by the second quarter of 2025. This trend suggests a buildup of stock over time, potentially reflective of strategic stocking policies or slower inventory turnover. The consistent increase in inventory levels is an important factor to consider alongside changes in cost of products sold and inventory turnover ratios.

Inventory Turnover Ratio

The inventory turnover ratio shows a declining trend from 2.86 in April 2021 to approximately 2.08 by the third quarter of 2025. This decreasing ratio indicates that the company is turning over its inventory less frequently over time. The lowest turnover ratios occur in the most recent periods, aligning with higher inventory levels and somewhat stable or slightly decreasing cost of goods sold. This pattern may point to potential inefficiencies in inventory management or slower sales leading to longer inventory holding periods.

In summary, the data suggests an environment of rising inventory levels combined with a decreasing inventory turnover ratio, which could imply increasing inventory holding costs or a buildup of stock relative to sales. The cost of products sold does not show a clear directional trend but fluctuates within a range that does not fully correspond with the changes in inventory levels, indicating possible shifts in pricing, production efficiency, or product mix. These trends warrant further examination to optimize inventory management and cost control strategies.

The financial metrics exhibit several notable trends over the examined periods, reflecting changes in sales volumes, receivables levels, and efficiency in managing receivables.

Sales to customers (US$ in millions)

Sales demonstrated moderate fluctuations throughout the quarters. Initially, sales increased from 22,321 million to a peak around 24,804 million in the last quarter of 2021. Following this peak, sales experienced some decline and volatility, falling below 21,000 million in early 2023 before a gradual recovery towards the latter periods. By the second quarter of 2025, sales rose again reaching approximately 23,993 million. This pattern indicates a cycle of growth, contraction, and stabilization with recent quarters showing a positive tendency.

Accounts receivable, trade, less allowances (US$ in millions)

The accounts receivable balance generally trended upward from approximately 14,938 million early in 2021 to peak values beyond 17,846 million by September 2025. Despite some quarter-to-quarter variations, the overall increase suggests expansion in credit extended to customers or delays in collections. Notably, this rise was not always concurrent with sales increases, indicating possible changes in receivables management or customer payment behaviors.

Receivables turnover (ratio)

The receivables turnover ratio indicates the efficiency with which the company collects its receivables. Early ratios were higher, around 5.64 to 6.14, indicating relatively quick collections. Over time, the ratio showed a declining trend, falling to around 5.23 by the later periods. This decrease suggests a slowdown in collection efficiency, corroborated by the rising accounts receivable balances despite fluctuating sales volumes.

In summary, sales presented cyclical movement with a notable dip and subsequent recovery. Concurrently, accounts receivable balances increased, and receivables turnover ratios declined over time. This combination suggests widening collection periods or increased credit terms, potentially impacting cash flow. Monitoring these trends will be essential for ensuring sustained liquidity and operational efficiency.

Cost of Products Sold

The cost of products sold exhibited fluctuations throughout the reported periods. Initially, the figures rose from 7,063 million USD to a peak near 7,919 million USD by mid-2022. Post this peak, the cost experienced a notable decline, reaching a low around 6,462 million USD in the third quarter of 2023. Subsequently, costs gradually increased again, with some variability, peaking at approximately 7,628 million USD by mid-2025 before a slight decline towards the last recorded period. This pattern indicates a cyclical behavior with costs reacting to potentially changing production volumes, pricing strategies, or supply chain conditions.

Accounts Payable

Accounts payable showed a generally upward trend with periodic volatility. Starting at 8,503 million USD, balances increased substantially, surpassing 11,000 million USD at the end of 2021. Following this, a downward correction occurred during the early 2023 period, with payable levels dropping to roughly 8,355 million USD. Despite this dip, a renewed increase was observed through to mid-2025, maintaining levels above 9,000 million USD consistently. These movements suggest dynamic supplier credit management and possibly varying purchasing activities or payment terms.

Payables Turnover Ratio

The payables turnover ratio, which measures the frequency of accounts payable settlements, fluctuated between approximately 2.66 and 3.38 over the timeline. Higher ratios near 3.3 were observed early on and intermittently through the periods, indicating relatively faster payment cycles during those times. Lower values around 2.66 to 2.75 occurred primarily at the end of 2021 and again in late 2022 and early 2024, implying slower payment patterns or extended credit terms with suppliers. The overall variability in this ratio indicates changes in liquidity management and cash flow strategies relative to supplier payments.

The financial data reveals notable fluctuations and trends in working capital, sales to customers, and working capital turnover over the observed periods.

Working Capital

Working capital exhibits variability, peaking initially in late 2021 and mid-2022 with values around 19,000 million USD before experiencing a sharp decline to a negative value in December 2022. Subsequent quarters show a recovery trend with intermittent fluctuations. Notably, by early and mid-2025, working capital stabilizes at moderate levels but remains significantly lower compared to the earlier part of the series. This pattern suggests some operational or financial adjustments impacting liquidity position intermittently, including a brief period indicating potential liquidity strain.

Sales to Customers

Sales generally display a relatively stable pattern with minor fluctuations. Early periods from 2021 into 2022 show sales primarily hovering between approximately 23,000 and 24,000 million USD. A slight dip occurs during 2023, with sales decreasing closer to the 21,000 million USD range before gradually recovering towards 24,000 million USD by mid-2025. This indicates some volatility but no sustained downward or upward trend, reflecting steady customer demand or revenue generation.

Working Capital Turnover

The working capital turnover ratio demonstrates considerable variation, likely influenced by extreme changes in working capital values. Early ratios decline gradually from above 7 down to around 4.88, suggesting a decreasing efficiency in generating sales from working capital initially. The absence of some values in late 2022 hampers continuous analysis at that point. However, a striking anomaly is observed in 2023 and 2024, where turnover ratios surge sharply, reaching exceptionally high figures (e.g., above 50 and even nearing 285), signaling a minimal working capital base relative to sales. This typically indicates either a tightening of working capital or accounting adjustments impacting this ratio. Ratios then return closer to lower levels by mid-2025. Such extreme spikes imply periods of operational intensification or extraordinary changes in asset/liability management.

Overall, the data indicates a complex interplay between liquidity and sales generation over time. While sales remain fairly steady, working capital experiences significant volatility, including instances of negative values, which substantially impacts the turnover ratio. The extreme variations in working capital turnover in some quarters warrant further examination for underlying causes such as changes in inventory management, accounts receivable/payable policies, or extraordinary financial transactions. The trends suggest periods of both operational efficiency and stress, emphasizing the importance of close working capital monitoring relative to sales performance.

Inventory Turnover Trend

The inventory turnover ratio demonstrates a gradual decline over the observed periods. Starting at 2.86 in early 2021, the ratio exhibits a downward trajectory, reaching a low of 2.08 by late 2025. This decreasing trend suggests a slowing rate at which inventory is sold and replaced, indicating potential challenges in inventory management efficiency or changes in sales dynamics.

Average Inventory Processing Period Trend

The average inventory processing period, measured in days, shows a consistent increase throughout the periods analyzed. Beginning at 128 days in April 2021, this metric extends to 176 days by September 2025. The increasing number of days corresponds inversely with the declining inventory turnover, reflecting slower inventory movement and extended holding times.

Correlation between Inventory Metrics

There is a clear inverse relationship between inventory turnover and average inventory processing period. As the turnover ratio decreases, the average number of days inventory is held increases. This pattern indicates that inventory is remaining on hand longer before being sold, which could impact working capital and may necessitate strategic adjustments to inventory management or sales strategies to improve efficiency.

Overall Implications

The observed trends suggest a potential buildup of inventory or slower sales relative to stock levels. Sustained increases in inventory holding times could lead to higher storage costs and risk of obsolescence. Management may need to investigate underlying causes, such as market demand shifts or supply chain factors, and consider measures to optimize inventory turnover rates to enhance operational performance.

Receivables Turnover Ratio

The receivables turnover ratio exhibits fluctuations over the analyzed periods without a clear sustained upward or downward trend. Starting at 5.64, the ratio increased to a peak near 6.14 in the fourth quarter of 2021 before gradually declining to values around 5.36 to 5.48 in mid-2023 and early 2024. A mild recovery is noted in late 2024 with the ratio approaching 5.98, followed by a subsequent decline to approximately 5.23 in the latest quarter. These variations suggest periodic changes in the company's efficiency in collecting receivables, with some periods indicating improved collection velocity and others reflecting slower turnover.

Average Receivable Collection Period

The average collection period demonstrates an inverse relationship with the receivables turnover ratio, as expected. Initially, the collection period decreased from 65 days to 59 days through the first year, suggesting improved collection efficiency. However, from early 2022 onward, the number of days to collect receivables showed a general increase, reaching peaks as high as 72 days in late 2025. The collection period's rise during this timeframe indicates a trend toward slower receivables turnover and potentially extended credit terms or collection delays. Notably, minor declines are observed in early 2024 and late 2024, temporarily reversing the increasing trend.

Overall Insights

The data reveals a cyclical pattern in receivables management effectiveness, with phases of improved and deteriorated collection efficiency. The reciprocal behavior of the turnover ratio and collection period aligns with normal expectations but indicates that recent quarters are challenged by longer collection cycles compared to earlier periods. This trend may impact liquidity and working capital management, necessitating attention to credit policies and collection procedures to optimize cash flow.

Average Inventory Processing Period

The average inventory processing period exhibits a generally increasing trend over the analyzed quarters. Starting from 128 days in the first quarter of 2021, it experienced minor fluctuations initially but began a more consistent rise from early 2022 onwards. By the end of 2025, the period extended to 176 days, indicating a longer duration for inventory turnover. This pattern suggests a slowdown in inventory movement or potentially greater stockpiling, which may impact working capital management.

Average Receivable Collection Period

The average receivable collection period shows moderate variability with an overall mild upward tendency throughout the timeframe. Initially, the period was 65 days in early 2021, with some short-term decreases toward 59–60 days but gradually increased again to reach a peak of 72 days in late 2025. The variation in collection days implies fluctuations in the company's ability to collect receivables efficiently, with indications of slightly longer credit terms or slower customer payments towards the end of the period.

Operating Cycle

The operating cycle, which combines inventory processing and receivable collection periods, reflects a steady and significant increase from 193 days to 246 days over the observed quarters. This elongation corresponds with the trends observed in both inventory and receivables periods. The consistent rise indicates that the company experiences longer cash conversion cycles, which may affect liquidity and operational efficiency, highlighting the need for attention to working capital strategies.

Payables Turnover

The payables turnover ratio exhibits moderate fluctuations across the observed periods. The ratio oscillates mostly between approximately 2.66 and 3.38, with no sustained upward or downward trend. Notably, lower turnover ratios occur near year-end quarters such as December 2021, 2022, and 2024, indicating a slower rate of paying off payables during those times. Conversely, peaks slightly above 3.2 are observed in certain mid-year quarters, such as April 2021 and April 2022, suggesting relatively faster payment cycles during those quarters. Overall, the turnover ratio remains relatively stable with some seasonal variation.

Average Payables Payment Period

The average payables payment period in days shows an inverse pattern to the payables turnover, consistent with financial theory. The period ranges generally between about 108 and 137 days, indicating a consistent extended timeframe for settling payables. The longest payment periods tend to occur in the final quarters of each year (December 2021, 2022, and 2024), where periods stretch to around 135-137 days. The shorter payment periods mostly align with early-year quarters but still hover above 100 days, displaying a tendency towards relatively longer payment cycles. This pattern suggests a seasonal or cyclical element in the timing of disbursements, possibly related to fiscal year-end processes or working capital management strategies.

Overall Insights

The relationship between payables turnover and average payment period is consistent and reciprocal, reflecting normal financial operations. The seasonal pattern, with slower payment cycles in December quarters, may reflect strategic cash flow management or operational timing consistent with the company’s business cycle. No abrupt changes or significant trends indicate stable payables management practices over the analyzed timeframe.

The analysis of the quarterly financial data reveals notable trends in the company's working capital management over the observed periods. The focus is on four key metrics: average inventory processing period, average receivable collection period, average payables payment period, and cash conversion cycle.

Average Inventory Processing Period

This metric generally exhibits an upward trend over the time frame. Starting from 128 days, it fluctuates slightly in the earlier quarters but increases more steadily from late 2021 onward. The period extends from 128 days in April 2021 to 176 days by September 2025, indicating that inventory is being held for progressively longer durations. This longer inventory processing period could signal slower inventory turnover or changes in inventory management strategy.

Average Receivable Collection Period

The receivable collection period shows minor fluctuations throughout the observed timeline but remains relatively stable overall. It starts at 65 days in April 2021, experiences several oscillations between 59 and 72 days, and ends at 70 days in September 2025. The stability suggests consistent collection strategies with only modest variability in the efficiency of converting receivables into cash.

Average Payables Payment Period

The payables payment period reveals a mixed pattern. Beginning around 109 days in April 2021, it increases to a peak of 137 days in December 2021, experiences some declines and rises again, and stabilizes around the 119-123 day mark by the end of the data series in 2025. The initial lengthening of this period might reflect efforts to optimize cash outflows, but the subsequent fluctuation and stabilization indicate a possible balance between supplier relations and cash management.

Cash Conversion Cycle

This key efficiency indicator shows a considerable degree of volatility. Starting at 84 days in April 2021, it decreases sharply to a low of 51 days in December 2021, suggesting a temporary improvement in working capital efficiency. However, from 2022 onward, the cash conversion cycle lengthens again, reaching 127 days by September 2025. The increase after 2021 aligns with the trends in lengthening inventory periods and fluctuating collection and payment periods, indicating an overall increase in the time required to convert investments in inventory and receivables back into cash.

In summary, the data suggest that while receivable collection practices remain fairly stable, the company is holding inventory longer and experiencing variable payment terms with suppliers. The cash conversion cycle's increase in recent years points to a reduction in working capital efficiency, which could affect liquidity and operational flexibility. This pattern may warrant further investigation to identify underlying causes and potential operational improvements.