Johnson & Johnson (NYSE:JNJ)

An examination of the short-term operating activity ratios reveals several noteworthy trends over the observed period. Generally, a decreasing trend is apparent in inventory and receivables turnover, while payables turnover exhibits more fluctuation. The working capital turnover ratio demonstrates significant volatility. Analysis of the period-based metrics indicates lengthening collection and processing periods, with a corresponding impact on the operating and cash conversion cycles.

Inventory Management

Inventory turnover consistently declined from 2.77 to 2.13, suggesting a slower rate of inventory sales. This is corroborated by the average inventory processing period, which increased from 132 days to 171 days before decreasing slightly to 176 days, indicating inventory is taking longer to convert into sales. This could be due to a variety of factors, including shifts in demand, increased inventory levels, or potential obsolescence.

Receivables Management

Receivables turnover decreased from 6.08 to 5.48, indicating a lengthening of the time it takes to collect on credit sales. The average receivable collection period increased from 60 days to 67 days, reinforcing this observation. While there are some fluctuations, the overall trend suggests a potential weakening in the company’s ability to efficiently collect receivables.

Payables Management

Payables turnover shows more variability, ranging from a high of 3.26 to a low of 2.52. The average payables payment period increased from 112 days to 145 days, before decreasing to 119 days, suggesting a lengthening in the time taken to settle obligations to suppliers. This could be a strategic decision to manage cash flow, but prolonged increases could strain supplier relationships.

Working Capital Efficiency

The working capital turnover ratio experienced substantial fluctuations. A significant increase to 23.02 and then to 58.86, followed by a decrease to 6.10 and a subsequent jump to 284.99, and finally settling at 62.88, suggests considerable changes in the relationship between sales and working capital. These large swings warrant further investigation to understand the underlying drivers, potentially related to significant changes in working capital management or accounting practices.

Operating and Cash Conversion Cycles

The operating cycle generally increased from 192 days to 246 days before decreasing to 238 days, reflecting the combined effect of slower inventory turnover and receivable collection. The cash conversion cycle followed a similar pattern, increasing from 80 days to 127 days before decreasing to 93 days. These lengthening cycles indicate that the company is taking longer to convert its investments in inventory and receivables into cash.

In summary, the observed trends suggest a potential slowdown in the efficiency of working capital management. While fluctuations exist, the general direction points towards longer processing, collection, and conversion cycles. Further investigation is recommended to determine the root causes of these trends and their potential impact on the company’s financial performance.

The inventory turnover ratio experienced a generally declining trend over the observed period, spanning from April 2022 to December 2025. While fluctuations occurred, the ratio consistently decreased from an initial value of 2.77 to a final value of 2.13. This suggests a lengthening of the time it takes to sell inventory.

Initial Phase (Apr 3, 2022 – Dec 31, 2022)

The inventory turnover ratio began at 2.77 and exhibited a gradual decline to 2.49. This initial decrease, though moderate, indicates a slight slowdown in inventory liquidation during this period. Cost of products sold remained relatively stable, while inventories increased, contributing to the lower turnover.

Continued Decline (Apr 2, 2023 – Sep 28, 2025)

From April 2023 through September 2025, the ratio continued its downward trajectory, reaching a low of 2.08. This period saw a more pronounced decrease, suggesting a more significant slowdown in inventory movement. While cost of products sold experienced some quarterly variations, inventories generally remained high, and even increased, exerting downward pressure on the turnover ratio. The increase in inventories is particularly noticeable between March 2024 and September 2025.

Recent Period (Dec 28, 2025 – Dec 29, 2025)

The final period shows a slight increase in the inventory turnover ratio to 2.13. This marginal improvement may indicate a stabilization, but does not reverse the overall declining trend. Cost of products sold increased notably in this period, while inventories remained relatively flat.

Overall, the observed trend suggests a potential issue with inventory management. The company appears to be holding onto inventory for longer periods, which could tie up capital and increase storage costs. Further investigation into the reasons behind the increasing inventory levels and slowing turnover is warranted.

The receivables turnover ratio exhibits fluctuations over the observed period, generally indicating a moderate level of efficiency in collecting receivables. An initial period of relative stability is followed by a noticeable decline, then a partial recovery, and finally a stabilization around a lower level than the beginning of the period.

Overall Trend

The receivables turnover ratio began at 6.08 and generally decreased through the first half of 2023, reaching a low of 5.08. It then experienced a rebound, rising to 5.48 by the end of 2023 and stabilizing around that level through the subsequent quarters, concluding at 5.48. This suggests a potential weakening in the efficiency of receivables collection, followed by some improvement, but not a return to initial levels.

Initial Period (Apr 3, 2022 – Dec 31, 2022)

From April 2022 to December 2022, the ratio remained relatively stable, fluctuating between 5.88 and 6.08. This indicates consistent performance in converting receivables into cash during this timeframe. The slight decrease in the final quarter of 2022 may warrant further investigation, but is not substantial.

Decline (Apr 2, 2023 – Jun 29, 2025)

A clear downward trend is observed from April 2023 through June 2025. The ratio decreased from 5.65 to a low of 5.08 in June 2025. This decline could be attributed to several factors, including changes in credit policies, slower customer payments, or an increase in the volume of credit sales. The lowest point in the period is June 2025.

Recovery and Stabilization (Sep 28, 2025 – Dec 28, 2025)

Following the low in June 2025, the ratio showed a modest recovery, increasing to 5.23 in September 2025 and 5.48 in December 2025. This suggests that corrective actions or seasonal factors may have positively influenced receivables collection. The ratio then stabilized at 5.48, indicating a potential new normal for receivables turnover.

Correlation with Sales

While not explicitly calculated here, it is important to note that sales to customers decreased from 23,426 to 20,894 between April 2022 and April 2023, then generally increased again. The decline in receivables turnover during the same period may be partially explained by this initial sales decrease, but the subsequent stabilization of the ratio despite continued sales growth suggests other factors are also at play.

In conclusion, the receivables turnover ratio demonstrates a period of initial stability, followed by a decline and a partial recovery. The ratio’s stabilization at a lower level than the beginning of the period suggests a potential shift in the company’s receivables management or customer payment behavior.

The accounts payable turnover ratio exhibits fluctuations over the observed period, generally ranging between 2.52 and 3.29. An initial decline is noted from the first quarter of 2022 through the last quarter of the same year, followed by a period of relative stability and then another decline towards the end of the observation window.

Overall Trend

The ratio demonstrates a generally decreasing trend when comparing the beginning and end of the period. While there are quarterly variations, the latter half of the period consistently shows lower turnover rates than the earlier quarters.

Initial Decline (2022)

A noticeable decrease in the payables turnover ratio is observed throughout 2022, moving from 3.26 in April 2022 to 2.66 in December 2022. This suggests a lengthening of the time it takes to pay suppliers during this period. This decline coincides with an increase in accounts payable.

Stabilization and Subsequent Decline (2023-2025)

Following the decline in 2022, the ratio experiences some stabilization in the first half of 2023, fluctuating around 3.0. However, a renewed downward trend emerges in late 2023 and continues through 2024 and into 2025, culminating in a ratio of 2.52 in December 2025. This indicates a further lengthening of the payables payment cycle.

Correlation with Cost of Products Sold

The cost of products sold generally increases over the period, but the payables turnover does not consistently follow this trend. While both metrics move in tandem at times, the decreasing payables turnover suggests that the company is not increasing payments to suppliers at the same rate as its cost of goods sold, or is potentially taking advantage of extended payment terms.

Recent Fluctuations

The most recent quarters (September 2024 – December 2025) show a continued low turnover, with a slight increase in the ratio in September 2024 before falling again. The accounts payable balance increased significantly in December 2025, contributing to the lowest ratio observed in the period.

In summary, the payables turnover ratio indicates a trend towards slower payments to suppliers, particularly in the latter part of the observed period. This could be due to a variety of factors, including negotiating longer payment terms, changes in supplier relationships, or internal cash management strategies.

The working capital turnover ratio exhibits considerable fluctuation over the observed period. Initial values demonstrate a generally decreasing trend from 5.57 to 4.88 between April 2022 and October 2022. A significant disruption is noted in December 2022, with a missing value, followed by a substantial increase to 23.02 in April 2023. Subsequent quarters in 2023 show a decreasing trend, settling at 11.81 by December. The first half of 2024 displays another surge, peaking at 58.86 in June, before declining to 15.94 by December. The final quarters of the period show volatility, with values of 6.10, 284.99, 24.63, 62.88, and finally 1.498.

Initial Decline (Apr 2022 - Oct 2022)

The initial period reveals a consistent, albeit moderate, decrease in the working capital turnover ratio. This suggests a potential slowing in the efficiency of utilizing working capital to generate sales during this timeframe. The decline from 5.57 to 4.88 indicates that for every dollar of working capital, less revenue was being generated.

Significant Volatility (Apr 2023 - Dec 2025)

Following the missing value in December 2022, the ratio experiences extreme volatility. The jump to 23.02 in April 2023 is particularly noteworthy, suggesting a significant improvement in working capital efficiency. However, this is followed by a series of declines and increases, indicating inconsistent performance. The exceptionally high value of 284.99 in June 2025 is an outlier and warrants further investigation to understand the underlying cause. The final value of 1.498 in December 2025 represents a substantial decrease and suggests a significant inefficiency in working capital utilization.

Seasonal Patterns

While the overall trend is volatile, there appears to be some potential for seasonal influence. Peaks in the ratio are observed in April/June, while declines are more common in the October/December periods. However, the inconsistency makes it difficult to establish a definitive seasonal pattern without further analysis.

Working Capital Fluctuations

The fluctuations in the working capital turnover ratio are closely linked to the changes in working capital and sales to customers. The large swings in the ratio are likely driven by significant changes in either of these components. The negative working capital balance reported in December 2022 is an anomaly that likely contributed to the missing ratio value and subsequent volatility.

In conclusion, the working capital turnover ratio demonstrates a highly variable performance over the analyzed period. While some potential seasonal influences are observed, the overall trend is characterized by significant fluctuations, requiring further investigation to determine the underlying drivers and potential areas for improvement in working capital management.

The average inventory processing period exhibited an increasing trend over the analyzed timeframe. Initially, the period stood at 132 days in April 2022, and generally increased through June 2025, with some quarterly fluctuations.

Overall Trend

A consistent upward trajectory is observed in the average inventory processing period. Starting at 132 days, it rose to 171 days by the end of the period, representing a roughly 30% increase. This suggests a lengthening of the time required to convert inventory into sales.

Short-Term Fluctuations

While the overall trend is upward, there are quarterly variations. A slight increase from 132 to 136 days occurred between April and July 2022. The period remained stable at 136 days through October 2022 before increasing to 147 days by December 2022. A decrease to 149 days was noted in April 2023, followed by a peak of 169 days in July 2023. The period then decreased slightly to 165 days in December 2023, before fluctuating between 163 and 176 days through September 2025, and ending at 171 days.

Recent Performance

The most recent quarters show a period hovering around 168-176 days. The period decreased slightly to 171 days in December 2025. This suggests the lengthening trend may be stabilizing, but remains elevated compared to the beginning of the analyzed period.

Inventory Turnover Relationship

The inventory turnover ratio demonstrates an inverse relationship with the average inventory processing period, as expected. As the average inventory processing period increased, the inventory turnover ratio generally decreased, indicating that inventory is being sold more slowly over time. The inventory turnover ratio decreased from 2.77 in April 2022 to 2.13 in December 2025.

The observed increase in the average inventory processing period warrants further investigation to determine the underlying causes. Potential factors could include changes in product mix, supply chain disruptions, shifts in demand patterns, or inefficiencies in inventory management practices.

The average receivable collection period exhibited fluctuations over the observed timeframe. Initially, the period remained relatively stable, followed by a period of increase, and then demonstrated some variability before stabilizing again. A detailed examination of the trends is presented below.

Overall Trend

The average receivable collection period generally increased from 60 days in April 2022 to a peak of 72 days in June 2025. However, this increase was not linear, with periods of decline interspersed. The period concluded at 67 days in December 2025, representing a slight decrease from the peak but still higher than the initial value.

Initial Stability and Subsequent Increase (Apr 2022 - Jul 2023)

From April 2022 through July 2023, the average collection period showed limited variation, oscillating between 60 and 68 days. A gradual upward trend became apparent in the latter half of this period, culminating in a collection period of 68 days in July 2023. This suggests a potential lengthening of the time required to collect receivables during this phase.

Fluctuation and Stabilization (Oct 2023 - Dec 2024)

The period from October 2023 to December 2024 was characterized by more pronounced fluctuations. The collection period decreased to 61 days in December 2023, then increased to 67 days by December 2024. This variability could be attributed to seasonal factors, changes in credit policies, or variations in customer payment behavior.

Recent Developments (Mar 2025 - Dec 2025)

The average collection period reached its highest point of 72 days in June 2025. This was followed by a decrease to 70 days in September 2025 and a further decrease to 67 days in December 2025. This recent decline may indicate improved collection efforts or a shift in customer payment patterns.

In summary, the average receivable collection period demonstrated a general increasing trend over the analyzed period, punctuated by periods of stability and fluctuation. The recent decline in the final two quarters suggests a potential improvement in receivable management, although the period remains elevated compared to the beginning of the observation window.

The operating cycle, along with its component parts, demonstrates a generally increasing trend over the observed period. Both the average inventory processing period and the average receivable collection period contribute to this lengthening cycle.

Average Inventory Processing Period

The average inventory processing period exhibited an upward trend throughout the analyzed timeframe. Starting at 132 days in April 2022, it generally increased, reaching 168 days in June 2025 before slightly decreasing to 171 days in December 2025. There were minor fluctuations within this overall increase, with a dip to 149 days in October 2022, but the overall trajectory points to a slower inventory turnover. The most significant increase occurred between April 2023 and July 2023, rising from 155 to 164 days.

Average Receivable Collection Period

The average receivable collection period also showed a consistent upward trend. Beginning at 60 days in April 2022, it rose to 67 days by December 2025. Similar to the inventory processing period, there were some quarterly variations, but the overall pattern indicates a lengthening time to collect receivables. A notable increase occurred between July 2023 and September 2023, moving from 68 to 70 days, and again between September 2024 and March 2025, rising from 67 to 72 days.

Operating Cycle

The operating cycle, calculated as the sum of the inventory processing and receivable collection periods, reflects the combined effect of the trends in its components. It increased from 192 days in April 2022 to 238 days in December 2025. The most substantial increase was observed between April 2022 and December 2022, rising from 192 to 209 days. The period peaked at 246 days in September 2025 before decreasing slightly in the final quarter. This lengthening operating cycle suggests that the entity is taking longer to convert its investments in inventory and receivables into cash.

The consistent increases in both inventory processing and receivable collection periods suggest potential inefficiencies in either inventory management, credit policies, or collection efforts. Further investigation into the underlying causes of these trends would be beneficial.

The average payables payment period exhibited fluctuations over the observed timeframe. Initially, a gradual increase is noted, followed by periods of relative stability and subsequent increases. The payables turnover ratio, inversely related to the payment period, demonstrates a corresponding pattern.

Overall Trend

From April 2022 to December 2022, the average payables payment period increased from 112 days to 137 days. This suggests a lengthening in the time taken to settle obligations to suppliers. A subsequent decrease to 111 days was observed by October 2023, indicating a potential improvement in payment efficiency. However, the period increased again to 145 days by December 2025.

Short-Term Fluctuations

A slight increase occurred between April 2022 (112 days) and July 2022 (116 days), followed by a further increase to 118 days in October 2022. The most significant increase occurred between October 2022 (118 days) and December 2022 (137 days). A decrease was then observed between December 2022 (137 days) and October 2023 (111 days). The period then fluctuated between 111 and 137 days through December 2024 before rising to 145 days by December 2025.

Recent Performance

The most recent periods, from March 2024 through December 2025, show a general trend towards a longer payment period. While there are minor fluctuations, the period consistently remains above the initial value observed in April 2022, culminating in 145 days in December 2025. This suggests a potential shift in payment practices or supplier negotiations.

Payables Turnover Relationship

The payables turnover ratio generally mirrors the inverse relationship with the payment period. Higher turnover ratios (e.g., 3.26 in April 2022) correspond to shorter payment periods, while lower turnover ratios (e.g., 2.52 in December 2025) align with longer payment periods. The lowest turnover ratio and highest payment period were both recorded in December 2025.

The short-term operating activity, as measured by the cash conversion cycle and its components, exhibits notable fluctuations over the observed period. An initial period of relative stability is followed by a period of lengthening cycles, then a partial recovery, and finally, renewed lengthening. The analysis below details these trends for each component and the overall cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period demonstrates a consistent upward trend from 132 days in April 2022 to 176 days in September 2025. While there are minor quarterly variations, the overall trajectory indicates a lengthening time required to convert inventory into finished goods and make them available for sale. A slight decrease is observed in December 2025, falling to 171 days, but this does not reverse the overall trend. The most significant increases occurred between April 2023 and September 2025.

Average Receivable Collection Period

The average receivable collection period also shows an increasing trend, though less pronounced than that of inventory processing. Starting at 60 days in April 2022, it rises to 72 days in June 2025, with fluctuations throughout the period. The period peaked at 72 days in June 2025, before decreasing to 67 days in December 2025. The increases are generally gradual, suggesting a potential slowing in the efficiency of collecting payments from customers.

Average Payables Payment Period

The average payables payment period is the most volatile of the three components. It begins at 112 days in April 2022 and reaches a peak of 137 days in December 2022 and again in December 2024. A decrease is observed in October 2023 to 111 days, followed by a substantial increase to 145 days in December 2025. This suggests varying negotiation power with suppliers and/or strategic decisions regarding payment timing. The fluctuations indicate less consistency in managing payments to suppliers compared to inventory and receivables.

Cash Conversion Cycle

The cash conversion cycle initially decreased from 80 days in April 2022 to a low of 72 days in December 2022. However, it then increased significantly, reaching a peak of 127 days in September 2025. A decrease to 93 days is observed in December 2025. The lengthening cycle is primarily driven by the increases in both the inventory processing and receivable collection periods, partially offset by fluctuations in the payables payment period. The cycle’s increase suggests a growing time lag between investing in inventory and collecting cash from sales, potentially indicating a need for improved working capital management. The most substantial increase occurred between December 2022 and September 2025.

In summary, the observed trends suggest a gradual deterioration in the efficiency of the working capital cycle. While the payables period offers some flexibility, the lengthening inventory and receivables cycles are contributing to a longer cash conversion cycle, potentially tying up capital and increasing financing needs.