McKesson Corp. (NYSE:MCK)

The financial data reveals several notable trends regarding the company's efficiency in managing its working capital components over the six-year period.

Inventory Turnover

The inventory turnover ratio remained relatively stable from 2011 to 2013, fluctuating slightly around 11.5. There was a noticeable decline in 2014 to 9.72, followed by a recovery back to approximately 11.7 in the final two years. This suggests a temporary slowdown in inventory movement in 2014 but a return to prior turnover efficiency levels thereafter.

Receivables Turnover

The receivables turnover ratio held steady near 12.2 between 2011 and 2013 but declined significantly to 9.7 in 2014, indicating slower collection of receivables during that year. A partial recovery was observed in 2015 and 2016, though levels remained below the early period's ratios.

Payables Turnover

Payables turnover demonstrated a gradual decline from 7.53 in 2011 to 6.28 in 2016, with a notable dip in 2014. This suggests the company took progressively longer to settle its payables, potentially lengthening its payment terms or facing challenges in accounts payable management.

Working Capital Turnover

The working capital turnover ratio more than doubled from 30.87 in 2011 to a peak of 67.54 in 2013, indicating an enhanced efficiency in using short-term capital to generate sales. However, this ratio declined to 44.79 in 2014 before improving again, stabilizing near 56.5 in the final two years. The spike and subsequent drop around 2013 and 2014 may reflect operational changes or shifts in working capital management practices.

Average Inventory Processing Period

Days inventory outstanding was steady at about 32 days until 2013, increased to 38 days in 2014, then improved to 31 days in 2015 and 2016. The 2014 increase aligns with the decline in inventory turnover that same year, signifying slower inventory movement during this period.

Average Receivable Collection Period

Receivable collection days remained constant at 30 days through 2013 but extended sharply to 38 days in 2014 before decreasing to around 33 days by 2016. This coincides with the reduction and partial recovery in receivables turnover, reflecting temporary delays in cash collections.

Operating Cycle

The operating cycle lengthened from approximately 62-63 days in the years up to 2013 to 76 days in 2014, indicating a slower overall conversion of inventory and receivables into cash. The cycle shortened again to the low 60s in subsequent years, suggesting an improvement in operational efficiency post-2014.

Average Payables Payment Period

The average payables period consistently increased from 48 days in 2011 to 58 days in 2016, with a marked rise in 2014 to 60 days. This suggests an increasing trend in the time taken to pay suppliers, which may have been a strategic measure to conserve cash or a result of payment delays.

Cash Conversion Cycle

The cash conversion cycle generally decreased during the period, from 14 days in 2011 down to 7 days in 2016, with some fluctuations including a peak of 16 days in 2014. This overall downward trend indicates improved efficiency in managing the time lag between outflows and inflows of cash, enhancing liquidity.

In summary, 2014 stands out as a year of reduced operational efficiency, with slower inventory turnover, lengthened collection and payment periods, and a prolonged operating and cash conversion cycle. However, improvements in subsequent years demonstrate a recovery in working capital management, highlighted by a shorter cash conversion cycle and stabilized turnover ratios. The lengthening payables period suggests a strategic shift in vendor payment timing, potentially optimizing cash flow.

Cost of Sales

The cost of sales exhibited a general upward trend over the six-year period. Beginning at approximately 106.1 billion US dollars in 2011, the value increased consistently each year, reaching 179.5 billion US dollars by 2016. This represents a significant increase, indicating growing operational scale or increased expenses related to goods sold.

Inventories, Net

Net inventories also showed a rising trend, starting at 9.2 billion US dollars in 2011 and growing steadily to 15.3 billion US dollars in 2016. This growth suggests an expansion in stock levels held by the company, which may reflect higher demand, increased purchasing, or changes in inventory management practices.

Inventory Turnover Ratio

The inventory turnover ratio remained relatively stable but showed some variation. Starting at 11.5 in 2011, it fluctuated slightly in subsequent years, reaching a low of 9.72 in 2014 before recovering to around 11.7 by 2016. This ratio indicates that, despite the increase in inventory levels, the company maintained an efficient turnover rate, with a temporary dip in 2014 suggesting slower inventory movement during that year.

Overall Insights

The company’s financial data reveals expanding costs and inventory assets over time, consistent with growth or scaling of operations. The cost of sales grew faster than the inventory levels, which alongside the relatively steady inventory turnover ratio, implies effective inventory management despite increasing volumes. The dip in inventory turnover in 2014 warrants further investigation to understand any operational challenges or market conditions affecting inventory sales during that period.

Revenues

Revenues showed a generally increasing trend over the period from 2011 to 2016. Starting at $112,084 million in 2011, revenues gradually increased year over year, reaching $190,884 million by 2016. Notably, there was a significant jump in 2015 where revenues rose sharply from $137,609 million in 2014 to $179,045 million, indicating a period of accelerated growth.

Receivables, net

Net receivables also exhibited an upward trend throughout the same period. Beginning at $9,187 million in 2011, net receivables rose steadily each year to reach $17,980 million in 2016. The increase in receivables was relatively consistent, with a notable increase between 2013 and 2014, growing from $9,975 million to $14,193 million, which aligns with the significant revenue growth in those years.

Receivables turnover

The receivables turnover ratio, which reflects the efficiency in collecting receivables, showed some fluctuation during the period. It remained relatively stable around 12.2 from 2011 to 2013 but decreased to 9.7 in 2014. This decline suggests a slower collection process or longer credit terms during that year. Subsequently, the ratio improved to 11.25 in 2015 but then declined slightly to 10.62 in 2016. Despite these fluctuations, the turnover remained below the initial levels from the early years, indicating a general trend toward decreased efficiency in receivables collection relative to revenues.

The financial data exhibits several notable trends over the six-year period ending March 31, 2016. There is a consistent increase in the cost of sales, rising from approximately $106.1 billion in 2011 to $179.5 billion in 2016. This growth indicates a significant expansion in the scale of operations or higher costs associated with goods sold over the period.

Correspondingly, the drafts and accounts payable have also increased steadily from $14.1 billion in 2011 to $28.6 billion in 2016. This upward trend aligns with the growth in cost of sales, reflecting an increase in the company’s short-term liabilities related to purchases and payments to suppliers.

Analysis of the payables turnover ratio reveals some fluctuations and a downward trend over the period. The ratio decreased from 7.53 in 2011 to a low of 6.03 in 2014, before partially recovering to 6.28 in 2016. This declining payables turnover ratio suggests that the company has been taking longer to pay its suppliers over time, which could have implications for supplier relationships and cash flow management.

Cost of Sales

Consistent year-over-year increase, with accelerated growth starting in 2014.

Drafts and Accounts Payable

Steady increase mirroring the rise in cost of sales, approximately doubling over six years.

Payables Turnover Ratio

Downward trend indicating a lengthening of payment periods, showing a decrease from 7.53 to 6.28.

Working Capital

Working capital shows a fluctuating trend over the periods analyzed. It declined significantly from $3,631 million in 2011 to $1,917 million in 2012 and further to $1,813 million in 2013. Thereafter, it recovered and increased moderately to $3,072 million in 2014, $3,173 million in 2015, and $3,366 million in 2016.

Revenues

Revenues demonstrate a consistent upward trend throughout the period. Starting from $112,084 million in 2011, revenues increased each year except for a slight dip between 2012 ($122,734 million) and 2013 ($122,455 million). From 2013 onwards, revenues rose steadily, reaching $137,609 million in 2014, $179,045 million in 2015, and $190,884 million in 2016.

Working Capital Turnover

Working capital turnover exhibits considerable volatility during the period. It surged from 30.87 in 2011 to a peak of 67.54 in 2013, indicating higher efficiency in utilizing working capital to generate revenues at that time. However, it declined to 44.79 in 2014 before increasing again to approximately 56.43 in 2015 and 56.71 in 2016, suggesting some stabilization in operational efficiency in more recent years.

Overall Analysis

The company’s working capital decreased significantly in the early years but rebounded in the later years, while revenues generally increased, particularly after 2013. The working capital turnover ratio shows that the company was more efficient in generating sales from its working capital around 2012-2013, with some decrease in efficiency afterward, though it remains higher than the initial 2011 level. This pattern suggests improving revenue generation capabilities alongside efforts to manage working capital more effectively in recent years.

Inventory Turnover

The inventory turnover ratio experienced minor fluctuations over the six-year period. Initially, the ratio was 11.5 in 2011 and slightly increased to 11.53 in 2012. It then declined to 11.17 in 2013 and more notably dropped to 9.72 in 2014. However, the ratio recovered in the subsequent years, reaching 11.73 in 2015 and stabilizing at 11.7 in 2016. This pattern indicates a temporary slowdown in inventory turnover around 2014, followed by a return to previous levels.

Average Inventory Processing Period

The average inventory processing period followed an inverse trend relative to inventory turnover. It remained steady at 32 days for 2011 and 2012, then slightly increased to 33 days in 2013. The most significant change occurred in 2014 when the processing period lengthened to 38 days, corresponding to the dip in turnover ratio observed that year. Subsequently, the processing period decreased to 31 days in both 2015 and 2016, aligning with the rebound in turnover ratio and implying improved inventory management efficiency during those years.

Overall Insights

The data reveal a clear inverse relationship between inventory turnover and average inventory processing period, consistent with operational expectations. The notable dip in turnover and corresponding increase in processing days in 2014 suggests a temporary challenge or strategic shift in inventory handling during that year. Recovery in the subsequent years reflects regained efficiency or changes in inventory management practices. The overall trends suggest stable operational performance with a brief period of reduced efficiency that was successfully addressed.

Receivables Turnover

The receivables turnover ratio exhibited slight fluctuations over the six-year period. It remained relatively stable around 12.2 to 12.3 between 2011 and 2013. However, there was a notable decline in 2014 to 9.7, followed by a partial recovery to 11.25 in 2015, before decreasing again slightly to 10.62 in 2016. This indicates some variability in the efficiency of collecting receivables after 2013.

Average Receivable Collection Period

The average receivable collection period was consistent at 30 days from 2011 through 2013, suggesting stable credit and collection policies. In 2014, there was a significant increase to 38 days, implying lengthened collection times and potential slowdown in cash inflows. This period decreased to 32 days in 2015 and marginally rose to 34 days in 2016, remaining above the earlier stable levels, which may signal ongoing collection challenges or changes in credit terms.

Overall Insights

The inverse relationship between the receivables turnover and the average collection period is evident. The dip in turnover ratio in 2014 aligns with the spike in collection days, highlighting a period of reduced collection efficiency. Although there was some improvement after 2014, neither metric fully returned to the initial stability observed during 2011-2013. This suggests that changes in receivables management or customer payment behavior occurred during this timeframe, impacting the company's short-term liquidity.

The analysis of the provided financial data reveals several notable trends in the company's inventory management, receivables collection, and overall operational cycle over the six-year period ending in March 2016.

Average Inventory Processing Period

The inventory processing period remained relatively stable at 32 days during 2011 and 2012, followed by a slight increase to 33 days in 2013. There was a significant rise to 38 days in 2014, indicating slower inventory turnover that year. However, this was reversed in the subsequent years, decreasing back to 31 days by 2015 and maintaining that level in 2016. This suggests an improvement in inventory management efficiency towards the end of the period.

Average Receivable Collection Period

The receivable collection period maintained a consistent 30 days through the first three years (2011-2013). It then increased notably to 38 days in 2014, implying a delay in collecting payments from customers. Although there was some improvement, reducing to 32 days in 2015, it rose again to 34 days in 2016. This pattern indicates some challenges in receivables collection after 2013, with partial recovery but persistent inefficiencies compared to the earlier years.

Operating Cycle

The operating cycle, representing the total time from inventory investment to cash collection, was steady at around 62-63 days from 2011 through 2013. It peaked at 76 days in 2014, coinciding with the peaks seen in both inventory and receivables periods. By 2015, it returned to 63 days and increased slightly to 65 days in 2016. The spike in 2014 indicates an operational slowdown during that year, but the following years suggest a return to a more normalized cycle length, albeit slightly longer than the earlier years.

Overall, the data points to a period of operational strain around 2014, characterized by longer inventory holding and delayed receivables collection, resulting in an extended operating cycle. Subsequently, improvements were observed in inventory processing times, but receivables collection remained somewhat inconsistent. The operating cycle trends mirror these fluctuations, highlighting the importance of ongoing management focus on both inventory and receivables to optimize working capital efficiency.

The financial data over the period from March 31, 2011 to March 31, 2016 reveals notable trends in McKesson Corp.'s payables management metrics.

Payables Turnover Ratio

The payables turnover ratio exhibits a general declining trend from 7.53 in 2011 to 6.28 in 2016. This indicates a slowing rate of turnover, as the ratio decreases by approximately 16.5% over the six-year period. The most significant drop occurred between 2013 (7.17) and 2014 (6.03), suggesting a change in payment practices or vendor terms during this interval. Following 2014, there was a slight uptick in 2015 to 6.66, but the ratio fell again in 2016 to 6.28, indicating some volatility but generally lower turnover compared to the early years.

Average Payables Payment Period (Days)

The average payables payment period increased from 48 days in 2011 to 58 days in 2016, signifying that the company is taking more time, on average, to pay its suppliers. Notably, the days increased steadily from 48 to 51 in 2012 and 2013, followed by a more pronounced jump to 60 days in 2014. After 2014, the payment period slightly declined to 55 days in 2015 but rose again to 58 days in 2016. This pattern is consistent with the downward trend observed in the payables turnover ratio, as longer payment periods correspond to a lower turnover ratio.

Overall, the data reflects a trend toward longer payment cycles to suppliers over the five-year span, which results in a reduced payables turnover ratio. This could imply an intentional strategy to extend payment terms or optimize working capital management by delaying cash outflows. However, fluctuations after 2014 suggest some variability in payment practices, warranting further investigation into operational or market factors influencing payables management during this timeframe.

Average Inventory Processing Period

The average inventory processing period remained relatively stable between 31 and 33 days from 2011 to 2013. In 2014, there was a noticeable increase to 38 days, followed by a return to 31 days in both 2015 and 2016. This indicates a temporary slowdown in inventory turnover in 2014, with a recovery to previous levels thereafter.

Average Receivable Collection Period

The receivable collection period was steady at 30 days from 2011 through 2013, then increased to 38 days in 2014. In the subsequent years, it slightly improved but remained higher than the early years, with 32 days in 2015 and 34 days in 2016. This suggests a lengthening in the time taken to collect receivables starting in 2014, with a moderate improvement after but no full return to the previous shorter periods.

Average Payables Payment Period

The payables payment period showed an upward trend throughout the period. Starting at 48 days in 2011, it gradually rose to 51 days by 2012 and 2013, then increased more sharply to 60 days in 2014. This was followed by a slight decrease to 55 days in 2015 and a rise again to 58 days in 2016. This pattern suggests an increasing delay in payments to suppliers over time, potentially indicating tighter cash management or negotiations for extended payment terms.

Cash Conversion Cycle

The cash conversion cycle decreased overall, moving from 14 days in 2011 down to 7 days in 2016, despite some fluctuations. It dipped to 11 and 12 days in 2012 and 2013, peaked at 16 days in 2014, then declined to 8 in 2015 and further to 7 in 2016. The reduction below the initial levels suggests improved efficiency in managing the working capital cycle, likely driven by better synchronization of inventory, receivables, and payables management.