Johnson & Johnson (NYSE:JNJ)

The financial ratios and periods analyzed reveal several trends in the company's operational efficiency and liquidity management over the reported quarters. These metrics provide insights into inventory management, receivables and payables effectiveness, and the overall cash conversion process.

Inventory Turnover

The inventory turnover ratio shows a gradual decline over the periods, starting from a peak around 3.04 and tapering down to approximately 2.24 by the latest quarter. This suggests that inventory is being cycled through less frequently over time, possibly indicating a slower sales pace or increased inventory levels.

Receivables Turnover

The receivables turnover ratio has fluctuated modestly but generally maintains a range around 5.3 to 6.1, indicating relatively stable efficiency in collecting receivables. Some decline is noted in recent quarters, potentially suggesting a slight relaxation in credit collection efforts or longer customer payment terms.

Payables Turnover

This ratio displays variability but remains roughly within a 2.6 to 3.3 range. There is no clear upward or downward trend, implying that the company has relatively consistent payment patterns to suppliers. Occasional dips in payables turnover could indicate temporary elongation of payment times to vendors.

Working Capital Turnover

The working capital turnover ratio demonstrates notable volatility. Initial values decline significantly from above 9 to about 4.88 before showing sharp spikes around 23.02 and 58.86 and then reverting to more moderate levels near 6.1. This inconsistency may reflect fluctuating sales in relation to working capital or irregularities in operational efficiency.

Average Inventory Processing Period

There is a consistent increase in the average inventory processing period, starting near 120 days and rising steadily to about 163 days. This lengthening of the inventory processing cycle could indicate slower inventory movement and potential overstocking concerns.

Average Receivable Collection Period

The average collection period for receivables shows slight variability, generally fluctuating between 59 and 68 days. Recent periods indicate a marginal lengthening, which may suggest relaxed credit terms or slower customer payments.

Operating Cycle

The operating cycle lengthens over time, moving from approximately 180 days to about 228 days. This trend is consistent with the increase in inventory processing and receivables collection periods, indicating a longer time span between acquisition of inventory and cash receipt from sales.

Average Payables Payment Period

The average payables payment period exhibits fluctuations without a clear directional trend, ranging mostly between 108 and 137 days. Occasional elongation of payment periods suggests strategic management of cash outflows but without persistent extension.

Cash Conversion Cycle

The cash conversion cycle varies notably between periods, generally ranging from about 51 to 116 days. The data shows episodes of both improvement and deterioration in how quickly cash is converted back from operations, reflecting variable efficiency in working capital management.

Overall, the data suggests a trend of increasing operating cycle duration driven by longer inventory holding and marginally slower receivable collections. While payables management remains relatively stable, the company's ability to efficiently convert investments in working capital into cash shows fluctuation. This indicates areas where operational improvements and tighter working capital management could enhance liquidity and efficiency over time.

Cost of Products Sold

The cost of products sold demonstrates variability over the periods analyzed. Beginning at 7,062 million US dollars in March 2020, it experienced a slight decline to 6,579 million by June 2020, followed by fluctuations with notable peaks around December of each year. The highest costs are observed near year-end 2020 (7,814 million) and year-end 2021 (7,955 million). There is a downward trend from April 2023 (6,687 million) through July 2023 (6,462 million), but the figures subsequently rise again into 2024 and early 2025, culminating at 7,357 million in March 2025. Overall, the cost of products sold shows seasonal increases toward year ends with recurring fluctuations throughout the analyzed timeframe.

Inventories

Inventories exhibit a general upward trend over the entire period. Starting from 8,868 million US dollars in March 2020, there is a consistent increase with some acceleration noticeable during late 2022 and early 2023, reaching a peak of 12,888 million in July 2023. After a brief dip in October 2023 to 11,198 million, inventories rise again through 2024, reaching 12,659 million by March 2025. This pattern suggests expanding stock levels with minor short-term reductions, indicative of possible inventory build-up strategies or changes in inventory management.

Inventory Turnover Ratio

The inventory turnover ratio, reported starting in September 2020, displays a declining trend over the periods observed. Initially recorded at 3.04, the ratio gradually decreases through subsequent quarters, moving below 2.5 by the end of 2022 and continuing downward to around 2.2 by late 2024. This decline in turnover ratio implies a lengthening inventory holding period, suggesting that inventory is being sold less frequently throughout the year. This trend may point to slower sales or increased inventory accumulation relative to cost of goods sold, requiring further monitoring for potential impacts on working capital efficiency.

The analyzed financial data reveals several notable trends in sales, accounts receivable, and receivables turnover over the indicated periods.

Sales to customers

Sales figures exhibit some volatility with a general pattern of fluctuations across quarters. There was an initial decline from 20,691 million USD in March 2020 to 18,336 million USD in June 2020, followed by a recovery and peak at 24,804 million USD by December 2021. Subsequently, sales declined notably in early 2023, reaching a low of 20,894 million USD in April 2023. After that, sales trends stabilized with smaller oscillations, ending at 21,893 million USD in March 2025. Overall, the sales trend reflects cyclic variations with recovery periods and intermittent slowdowns.

Accounts receivable, trade, less allowances

The accounts receivable balance increased gradually over the observed period. Starting at 14,874 million USD in March 2020, it saw minor dips but generally rose to a high point of 16,774 million USD in July 2023. After slight decreases in the subsequent periods, it again increased to reach 16,020 million USD by March 2025. This upward movement suggests a consistent accumulation of receivables, potentially linked to increased credit sales or elongated collection periods.

Receivables turnover ratio

The receivables turnover ratio shows a gradual downward trend from 6.08 in September 2020 to a minimum of 5.36 in April 2023, implying a slower conversion of receivables into cash over time. After this low point, the ratio exhibits slight improvement and stabilization around the mid-5 range, fluctuating between 5.42 and 5.98 in the last recorded periods. The reduction from earlier higher levels points to potential challenges in collections or changes in credit policy.

In summary, while sales have experienced oscillations with periods of growth and decline, accounts receivable have steadily increased, which has contributed to a declining trend in receivables turnover. This confluence may indicate longer collection cycles or more lenient credit terms affecting cash flow efficiency.

Cost of products sold

The cost of products sold exhibits a pattern of fluctuations over the observed periods. Initially, there is a decline from March 2020 through June 2020, followed by a rise peaking toward December 2020. Subsequent quarters show a repeating pattern of increases and decreases, with notable decreases during mid-2023, particularly from April to October. The overall trend from early 2023 to the end of 2024 is relatively stable with minor oscillations, though the values marginally increase again in the last reported quarters through March 2025.

Accounts payable

Accounts payable values display notable volatility with significant peaks and troughs. There is a strong upward trend from March 2020 to December 2020, where the values rise sharply. After a correction early in 2021, the payable amounts increase again toward the end of 2021 and continue to peak in multiple quarters thereafter. The pattern indicates sporadic increases, particularly at the end of calendar years, with some moderation in mid-year figures. The data suggests periodic accumulation and settlement cycles, with the highest values seen in late 2022 and mid-2024.

Payables turnover ratio

The payables turnover ratio, available only from December 2020 onwards, demonstrates variability without a consistent directional trend. Ratios oscillate between approximately 2.66 and 3.38, indicating fluctuations in how frequently accounts payable are settled relative to cost of goods sold. Higher ratio values generally signify quicker payments. Periods such as mid-2021 and early 2022 reflect relatively higher turnover, whereas ratios toward the end of 2023 and early 2024 indicate slower turnover. Overall, the ratio suggests inconsistent payment pacing with alternating quarters of acceleration and deceleration in payables settlement.

Summary insights

The data reveals that cost of products sold and accounts payable do not move entirely in tandem. While cost of products sold shows moderate cyclicality, accounts payable values have more pronounced fluctuations, implying varying credit terms or payment scheduling practices. The payables turnover ratio corroborates this, reflecting irregular payment patterns over time. Such variation may arise from strategic supplier negotiations, inventory management decisions, or external economic influences impacting procurement and cash flow management.

Working Capital

The working capital exhibits notable fluctuations over the analyzed periods. Starting from a moderate value around 10,537 million US dollars in March 2020, it declined to 9,120 million by June 2020, then sharply increased to 18,731 million by September 2020. A significant drop to 8,744 million was observed at the end of 2020. In 2021, working capital steadily rose, peaking at 19,693 million in October but dramatically turned negative to -508 million by the end of 2022. From 2023 onward, there is a recovery trend with values oscillating between 1,490 and 9,333 million, culminating in a substantial increase to 14,648 million by March 2025. This pattern suggests periods of volatility and possible inventory or receivables management changes, with a marked anomaly at the end of 2022.

Sales to Customers

Sales figures demonstrate relative stability with minor variances across the quarters. Beginning at 20,691 million US dollars in early 2020, sales dipped slightly in mid-2020 but recovered by December 2020 to around 22,475 million. During 2021, a gradual increase was evident, reaching a peak near 24,804 million in the last quarter. The sales plateaued and experienced some modest fluctuations between approximately 21,394 million and 22,471 million from 2023 onwards. The overall sales trend indicates resilience with no substantial growth or decline, reflecting consistent customer demand.

Working Capital Turnover

The working capital turnover ratio, available intermittently, reveals variable operational efficiency in utilizing working capital to generate sales. The ratio was relatively high, peaking at 9.44 in December 2020 but generally decreasing through 2021 to a low near 4.88 in October 2022. An anomalous spike to 23.02 was noted shortly thereafter, followed by oscillations with occasional very high values such as 58.86 in late 2024. These sharp increases correspond with periods of low or negative working capital, indicating that sales were generated from a relatively smaller base of working capital during those times. The volatility in this ratio suggests fluctuations in asset management policies and possible short-term liquidity challenges.

Overall Insights

The financial data reflects a company experiencing operational and working capital management challenges, particularly highlighted by the abrupt negative working capital at the end of 2022. Sales remained fairly stable throughout the periods, which points to consistent market performance despite internal liquidity and asset management variations. The irregularity and spikes in the working capital turnover ratio imply shifts in the efficiency of working capital usage, impacted heavily by the fluctuating base of working capital. Ongoing monitoring and management focus on working capital controls would be advisable to stabilize these metrics and ensure operational fluidity.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates a declining trend over the period analyzed. Beginning at approximately 3.04 in the earliest available quarter, the ratio steadily decreases to values around 2.15 to 2.24 in the most recent quarters. This decline suggests a slowing pace in the rate at which inventory is sold and replaced.

Average Inventory Processing Period

Correspondingly, the average inventory processing period, expressed in days, shows an upward trend across the same timeframe. Starting from 120 days, the period increases progressively, reaching values exceeding 160 days in recent quarters. This increase indicates that inventory remains in stock for longer durations before being sold or utilized.

Relationship and Implications

The inverse relationship between inventory turnover and inventory processing period is evident, with turnover decreasing as the processing period lengthens. This dynamic may suggest less efficient inventory management or changing market conditions affecting the speed of inventory movement. It could also reflect strategic decisions such as increasing safety stock or adjustments due to supply chain constraints.

Overall Assessment

Overall, the data reveals a clear shift toward slower inventory turnover and extended inventory holding periods over the observed quarters. This trend warrants further examination to understand underlying factors and potential impacts on liquidity, operational efficiency, and working capital management.

Receivables Turnover Ratio

The receivables turnover ratio shows moderate fluctuations over the observed quarters. Starting at 6.08 in March 29, 2020, the ratio initially declined to a low of 5.36 in April 2, 2023. Following this decline, a slight recovery trend is visible, with the ratio rising again to above 5.9 by October 1, 2023. Toward the end of the period, the ratio exhibits some variability, ending at 5.58 as of March 30, 2025. This pattern indicates some inconsistencies in how quickly receivables are collected, with a peak efficiency early on, a gradual weakening, and some improvement in recent periods.

Average Receivable Collection Period (number of days)

The average collection period generally mirrors the inverse pattern of the receivables turnover ratio, ranging from 59 to 68 days. It starts near 60 days in early 2020 and increases to about 65 days by April 4, 2021. This upward trend in days outstanding continues until it peaks around 68 days in April 2, 2023. After reaching this peak, the collection period shows some improvement, declining to about 61 days by October 1, 2023, followed again by an increase toward the end of the timeline, closing at 65 days by March 30, 2025. Overall, this suggests a period of slower collections followed by intermittent enhancements and subsequent deceleration.

Overall Analysis

The data reveals a modest decline in efficiency in accounts receivable management over the initial years, with slower collections reflected in lower turnover ratios and longer collection periods. This deterioration peaks around early 2023. Subsequent quarters display a partial recovery implying efforts to improve collections, but the volatility toward the latest dates suggests that this improvement is not entirely stabilized. Monitoring this metric will be important for understanding ongoing credit and collections effectiveness and cash flow implications.

The financial data reveals a consistent upward trend across key operational efficiency metrics over the observed periods.

Average Inventory Processing Period

The average inventory processing period shows a clear increasing pattern from 120 days in early 2021 to a peak of 169 days by mid-2024. Following this peak, a slight reduction occurs, with the metric declining to around 163 days at the end of the observed timeframe. This trend indicates that inventory is being held longer before sale or usage, which could reflect changes in inventory management, supply chain dynamics, or demand fluctuations.

Average Receivable Collection Period

The average receivable collection period experiences modest fluctuations, generally trending upward from 60 days to a high point of 68 days around mid-2023. Thereafter, it decreases somewhat, stabilizing around 61 to 65 days by early 2025. Such variations suggest changes in credit policy effectiveness or customer payment behaviors, with an overall slightly extended collection period compared to the beginning.

Operating Cycle

The operating cycle, representing the total time to convert inventory and receivables into cash, mirrors the increasing trends in inventory and receivables periods. It rises significantly from 180 days in early 2021 to a peak near 236 days by late 2024, before showing a slight decrease towards the end of the timeframe. This elongation of the operating cycle suggests a lengthening cash conversion process, which may impact liquidity and working capital management.

In summary, the metrics indicate a general lengthening of operational timelines, with inventory holding and cash collection taking more time on average. This could imply evolving operational challenges or strategic shifts in working capital policies. The slight decreases observed in the later quarters may reflect efforts to improve efficiency or adapt to market conditions.

The analysis of the payables turnover ratio and the average payables payment period reveals distinct fluctuations over the observed periods.

Payables Turnover Ratio

The payables turnover ratio demonstrates variability within a general range of approximately 2.66 to 3.38. The ratio shows a peak around the "Sep 27, 2020" to "Dec 31, 2020" interval where it attained values above 3.3, indicating relatively quicker payment of payables during this time. Following this peak, a downward trend is visible around the "Apr 3, 2022" to "Dec 31, 2022" period, with values declining to a low near 2.66. Subsequently, the ratio exhibits a modest recovery, fluctuating but not returning to the earlier peak levels, ending near 2.97 by "Mar 30, 2025". This pattern suggests some instability or varying payment behavior in managing accounts payable across the quarters.

Average Payables Payment Period

The average payables payment period reflects an inverse relationship with the payables turnover ratio, as expected. Initially observed at around 110 to 122 days in the early periods, this duration notably increases around the "Apr 3, 2022" and "Dec 31, 2022" periods, reaching up to 137 days. This indicates a slower settlement of payables during this timeframe. Afterward, the payment period varies but remains elevated compared to earlier quarters, concluding near 123 days by "Mar 30, 2025". This prolonged average period aligns with the observed decline in payables turnover ratio, suggesting the company took more time, on average, to settle its obligations in recent quarters.

Overall, the data reveals an oscillating pattern in payment practices, with periods of accelerated payable settlements alternating with stretches of more delayed payments. The recent trend indicates an inclination toward longer payment periods, which may reflect strategic cash management decisions or changes in supplier agreements or business conditions during the referenced quarters.

Average Inventory Processing Period

The average inventory processing period shows a consistent upward trend over the available quarters. Starting at 120 days in early 2021, it increased steadily to reach a peak of 169 days by mid-2024. Towards the end of the observed period, it slightly decreased but remained elevated around 163 days. This indicates that inventory is being held longer over time, which may suggest slower inventory turnover or changes in inventory management practices.

Average Receivable Collection Period

The receivable collection period fluctuates moderately with no clear long-term trend. It generally oscillates around the low to mid-60-day range, starting at 60 days in early 2021 and rising to a brief high of 68 days in late 2022. It then returns to roughly 60-67 days range through mid-2025. This relative stability suggests consistent credit and collection policies with minor short-term variations.

Average Payables Payment Period

The payables payment period exhibits variability throughout the observed timeline. Initially around 122 days, it declines to a low of about 108-109 days mid-2021, then rises sharply to highs above 130 days at several points, including late 2021 and mid-2023. By the end of the period, it remains elevated around 120-137 days. This pattern may reflect strategic payment timing adjustments or changes in supplier terms.

Cash Conversion Cycle

The cash conversion cycle shows notable volatility across the quarters. It starts at 58 days in early 2021, rises to a peak of 100 days by late 2022, then fluctuates between 72 and 116 days through mid-2025. The upward spikes correspond to periods of increased inventory processing and receivables, suggesting extended time to convert investments in inventory and receivables into cash. The fluctuations indicate variable efficiency in working capital management over time.

Overall Observations

The data reveals a trend of increasing inventory holding periods and variable payment terms to suppliers, which together drive the fluctuations in the cash conversion cycle. The receivable collection period remains relatively stable, implying steady credit management. The prolonged average inventory period and payment delays may impact liquidity dynamics, signaling the need for monitoring to optimize working capital and cash flow efficiency.