Johnson & Johnson (NYSE:JNJ)

The financial data reveals distinct trends in turnover ratios and corresponding period metrics over the five-year span.

Inventory Turnover

There is a consistent decline in inventory turnover from 3.04 in 2020 to 2.21 in 2024, indicating slower inventory movement over the years.

Receivables Turnover

Receivables turnover remained relatively stable, fluctuating slightly but maintaining a range between 5.73 and 6.14, signaling a mostly steady efficiency in collecting receivables.

Payables Turnover

Payables turnover shows minor volatility, dropping from 2.99 in 2020 to a low of 2.66 in 2022 and 2024, with a brief increase in 2023, suggesting slight fluctuations in payment timing to suppliers.

Working Capital Turnover

Working capital turnover experienced a sharp decrease in 2021 to 5.95 from 9.44 in 2020, data for 2022 is missing, followed by significant increases in 2023 (11.81) and 2024 (15.94), indicating improved efficiency in using working capital in recent years.

Average Inventory Processing Period

There is a notable upward trend in the average inventory processing period, extending from 120 days in 2020 to 165 days in 2024, consistent with the declining inventory turnover and suggesting increased holding periods for inventory.

Average Receivable Collection Period

This period remains relatively stable, fluctuating around 60 to 64 days, aligning with the steady receivables turnover and indicating consistent credit collection practices.

Operating Cycle

The operating cycle lengthened over the period, rising from 180 days in 2020 to 226 days in 2024, reflecting increased time invested in inventory and receivables before cash liquidation.

Average Payables Payment Period

The average payment period to suppliers increased from 122 days in 2020 to a peak of 137 days in 2022 and 2024, with a slight reduction in 2023, implying a tendency to extend payment terms or delays in payments.

Cash Conversion Cycle

The cash conversion cycle exhibits an increasing trend, growing from 58 days in 2020 to 89 days in 2024. This suggests a lengthening time between cash outflows to suppliers and cash inflows from customers, potentially impacting liquidity.

Cost of Products Sold

The cost of products sold showed an overall increasing trend from 2020 through 2022, rising from 28,427 million US dollars to 31,089 million US dollars. However, in the subsequent years 2023 and 2024, this figure declined, reaching 26,553 million and then slightly increasing again to 27,471 million US dollars. This pattern indicates an initial growth phase followed by a reduction and stabilization in the cost of goods sold.

Inventories

Inventories consistently increased over the five-year period, starting at 9,344 million US dollars in 2020 and reaching 12,444 million US dollars in 2024. Despite some fluctuations, the general upward trend suggests either growing stock levels or increasing value per unit, which could be indicative of changes in purchasing, production volume, or inventory management strategies.

Inventory Turnover Ratio

The inventory turnover ratio declined steadily from 3.04 in 2020 to 2.21 in 2024. This decreasing ratio suggests that the company is selling and replacing its inventory less frequently over time. This trend may reflect slower product sales, larger inventory accumulation, or possible inefficiencies in inventory management, possibly correlating with the rising inventory levels observed.

Sales to customers

Sales experienced an upward trend from 2020 through 2022, increasing from approximately $82.6 billion to nearly $94.9 billion. However, a noticeable decline occurred in 2023, with sales dropping to around $85.2 billion. In 2024, there was a partial recovery with sales rising again to approximately $88.8 billion, though still below the peak of 2022.

Accounts receivable trade, less allowances

The accounts receivable balance showed steady growth from 2020 to 2022, increasing from about $13.6 billion to $16.2 billion. Subsequently, the balance decreased in 2023 to roughly $14.9 billion and remained nearly stable into 2024 at $14.8 billion, indicating a potential improvement in collections or changes in credit terms after 2022.

Receivables turnover

The receivables turnover ratio slightly increased from 6.08 in 2020 to a peak of 6.14 in 2021, suggesting effective collection practices during that period. However, the ratio declined gradually over the next two years to 5.73 in 2023, potentially reflecting slower collections or extended payment terms. In 2024, the ratio rose again to 5.98, indicating some improvement in turnover efficiency but not returning to earlier levels.

Analysis of the annual financial data reveals several key trends and observations regarding the company's cost of products sold, accounts payable, and payables turnover ratio over the five-year period.

Cost of Products Sold

There is an overall increasing trend in the cost of products sold from 2020 to 2022, rising from $28,427 million to $31,089 million. However, in 2023, a noticeable decline occurred with the cost dropping significantly to $26,553 million before a slight rebound to $27,471 million in 2024. This pattern suggests variability in production or procurement costs, possibly influenced by market or operational factors during this period.

Accounts Payable

Accounts payable increased steadily from $9,505 million in 2020 to a peak of $11,703 million in 2022. Similar to the cost of products sold, a decrease was observed in 2023, with values falling to $9,632 million, followed by a recovery to $10,311 million in 2024. This trend reflects fluctuations in the company's short-term obligations, which may be correlated with changes in procurement volume or payment policies.

Payables Turnover Ratio

The payables turnover ratio demonstrates a declining trend from 2.99 in 2020 to 2.66 in 2022, indicating a slower rate of paying off suppliers over this period. Although a slight improvement to 2.76 occurred in 2023, the ratio returned to 2.66 in 2024. The lower payables turnover ratio suggests that the company may be taking longer to settle its payables, which could have implications for supplier relationships and cash flow management.

Overall, the data exhibits a cyclical pattern with peaks in 2022 for both costs and payables, followed by reductions in 2023 and partial recoveries in 2024. The decreasing trend in the payables turnover ratio indicates a possible change in payment practices or cash management strategy during these years. These insights can inform further examination of operational efficiency and financial management policies.

Working Capital

The working capital experienced significant fluctuations over the analyzed period. It nearly doubled from 8,744 million US dollars at the end of 2020 to 15,753 million US dollars by the end of 2021. However, in 2022, working capital sharply declined, becoming negative at -508 million US dollars. It partially recovered in 2023 to 7,213 million US dollars and slightly decreased again to 5,572 million US dollars by the end of 2024. This variability indicates potential operational or liquidity challenges during 2022, followed by some stabilization afterward.

Sales to Customers

Sales showed a general upward trend from 82,584 million US dollars in 2020 to a peak of 94,943 million US dollars in 2022. A decline occurred in 2023 with sales falling to 85,159 million US dollars, followed by a moderate recovery to 88,821 million US dollars in 2024. Despite fluctuations, overall sales remained relatively strong with variation possibly reflecting market or external economic conditions impacting revenue generation.

Working Capital Turnover

The working capital turnover ratio exhibits notable instability. Beginning at 9.44 in 2020, it dropped to 5.95 in 2021, with no value provided for 2022. It then climbed significantly to 11.81 in 2023 and further increased to 15.94 by the end of 2024. This upward trend in the later years suggests improving efficiency in using working capital to generate sales, especially after the negative working capital recorded in 2022 was addressed.

The financial data reveals several notable trends related to inventory management over the five-year period under review. A clear inverse relationship is observable between the inventory turnover ratio and the average inventory processing period.

Inventory Turnover Ratio

The inventory turnover ratio exhibited a downward trend, decreasing consistently from 3.04 in 2020 to 2.21 in 2024. This decline suggests that the company is selling and replenishing its inventory less frequently each year.

Average Inventory Processing Period

The average inventory processing period showed an upward progression, rising from 120 days in 2020 to 165 days in 2024. This increase indicates that inventory remains on hand for longer durations before being sold or used.

The trends illustrate that inventory turnover slowed progressively while inventory holding periods lengthened. These changes may imply challenges in inventory management efficiency, possibly indicating slower sales or overstocking issues. Monitoring these metrics closely is advisable to optimize inventory levels and improve turnover rates in future periods.

Receivables Turnover

The receivables turnover ratio exhibits a slight decreasing trend from 6.14 in 2021 to 5.73 in 2023, before rebounding somewhat to 5.98 in 2024. This indicates a modest decline in the efficiency of collecting receivables over the years 2021 to 2023, followed by a partial recovery in 2024.

Average Receivable Collection Period

The average receivable collection period shows a generally increasing pattern from 59 days in 2021 to 64 days in 2023, suggesting that on average it took longer to collect receivables during this period. Thereafter, a decrease to 61 days in 2024 signals an improvement in collection speed, aligning with the improved receivables turnover ratio observed in the same year.

Overall Analysis

The temporal relationship between the two metrics supports the interpretation of a temporary weakening in receivables management efficiency between 2021 and 2023, with some recovery in 2024. The inverse movement of turnover ratio and collection period is consistent with typical financial behavior, reflecting changes in the company's effectiveness in converting receivables to cash.

The financial data reveals several notable trends over the reported periods from 2020 to 2024, particularly concerning Johnson & Johnson's operational efficiency metrics.

Average Inventory Processing Period

The average inventory processing period has exhibited a steady increase each year, rising from 120 days in 2020 to 165 days in 2024. This upward trend suggests a lengthening in the time inventory remains within the company before being processed, potentially indicating slower inventory turnover or increased stock levels.

Average Receivable Collection Period

The average receivable collection period has remained relatively stable throughout the years, fluctuating modestly between 59 and 64 days. Starting at 60 days in 2020, it peaked at 64 days in 2023 before slightly decreasing to 61 days in 2024. This stability implies consistent management of accounts receivable and a relatively steady collection process.

Operating Cycle

The operating cycle, which combines inventory processing and receivable collection periods, has shown a continuous increase, moving from 180 days in 2020 to 226 days in 2024. This lengthening cycle reflects the combined effects of the increasing inventory processing period and the relatively stable receivable collection period. A longer operating cycle can indicate slower conversion of resources into cash, which may impact liquidity or cash flow management.

Overall, the data highlights a growing inventory processing duration as a primary driver for the increased operating cycle, while the receivable collection period remains well-managed. Attention to inventory management efficiency could be beneficial in addressing the extension of the operating cycle.

The analysis of the payables-related financial ratios over the five-year period reveals distinct patterns in the company's payment behavior and management of payables.

Payables Turnover Ratio

The payables turnover ratio shows a general declining trend from 2.99 in 2020 to 2.66 in 2022, with a slight increase to 2.76 in 2023, before settling back to 2.66 in 2024. This fluctuation suggests the company is taking longer to pay its suppliers compared to 2020, indicating a slower rate of payables turnover overall.

Average Payables Payment Period

The average payment period measured in days reveals an upward trend, increasing from 122 days in 2020 to 135 days in 2021, then slightly rising to 137 days in 2022. It declined somewhat to 132 days in 2023 but returned to 137 days in 2024. This pattern corresponds inversely with the payables turnover ratio, confirming that the company has extended the time it takes to settle payables, which may reflect a strategic effort to manage cash flow by delaying payments within allowable limits.

Overall, the data indicate a consistent tendency toward longer payment periods over the examined timeframe, except for a minor relaxation in 2023. This behavior could suggest a deliberate management decision to optimize working capital management and liquidity, albeit with the potential risk of supplier relationship strain if payment delays persist.

The financial data over the five-year period indicates distinct trends in the company's operational efficiency, particularly in inventory management, receivables, payables, and overall cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period has consistently increased from 120 days at the end of 2020 to 165 days at the end of 2024. This upward trend suggests that inventory turnover has slowed, indicating either growing inventory levels or longer time to sell inventory, which could affect working capital utilization.

Average Receivable Collection Period

The receivable collection period shows minor fluctuations but remains relatively stable over the five years. It decreased slightly from 60 days in 2020 to 59 days in 2021, then rose to 64 days in 2023 before settling at 61 days by the end of 2024. This pattern implies stable collection efficiency with no significant deterioration or improvement.

Average Payables Payment Period

The payables payment period expanded notably from 122 days in 2020 to a peak of 137 days at the end of 2022 and again in 2024, with a slight dip in 2023 to 132 days. The lengthening payables period suggests the company is taking longer to settle its obligations, which could be a strategy to preserve cash but may affect supplier relations.

Cash Conversion Cycle

The cash conversion cycle, which measures the net time between cash outflow and inflow, increased from 58 days in 2020 to 89 days in 2024. This rise indicates a reduction in cash flow efficiency, largely driven by the longer inventory processing and receivables collection periods relative to the extended payables period. An increasing cash conversion cycle typically signals higher working capital requirements.

Overall, the trends suggest the company is experiencing slower inventory turnover and extended payment terms with suppliers, leading to a longer cash conversion cycle. Receivables management remains relatively stable, which partially mitigates potential cash flow impacts. The lengthening of the cash conversion cycle should be monitored as it may have implications for liquidity and operational efficiency.