Merck & Co. Inc. (NYSE:MRK)

Inventory Turnover

The inventory turnover ratio displayed fluctuations over the observed periods. It initially increased from 2.4 to a peak of 3.1 before gradually declining to values around 2.25–2.49 towards the end. This suggests a moderate decrease in the efficiency of inventory management as the periods progressed, particularly in the later years.

Receivables Turnover

The receivables turnover ratio generally remained within a range of approximately 5.3 to 6.3, exhibiting some variability but no significant upward or downward trend. This indicates relatively stable effectiveness in collecting receivables throughout the periods.

Payables Turnover

The payables turnover ratio showed notable volatility, with values shifting between roughly 3.5 and 5.2. After reaching higher levels around mid-2022, the ratio declined toward the latter periods, indicating a potential extension in the time taken to settle payables.

Working Capital Turnover

Working capital turnover presented significant fluctuations, with several peaks and troughs across quarters. The ratio started very high at about 85, then stabilized around the 5 to 9 range. More recent quarters showed some decline, particularly towards the last periods where values dropped near 3.4, reflecting a reduction in the efficiency of using working capital to generate sales.

Average Inventory Processing Period

The average inventory processing period fluctuated between approximately 118 and 162 days. There was a general trend of initial reduction in days followed by an increase during later periods, indicating some challenges in maintaining fast inventory turnover.

Average Receivable Collection Period

The average receivable collection period remained relatively stable around 58 to 69 days. Minor fluctuations occurred quarter-to-quarter, but no clear directional trend surfaced, suggesting consistent credit and collection policies over time.

Operating Cycle

The operating cycle demonstrated variation between 177 and 230 days, reflecting the combined effect of inventory processing and receivables collection durations. Periodic increases were noted, particularly in latter periods, indicating a longer time span to convert inventory and receivables into cash.

Average Payables Payment Period

The average payables payment period varied significantly between 71 and 123 days. Initial periods saw shorter payment durations that gradually extended in later periods, implying a trend toward longer payment terms to suppliers.

Cash Conversion Cycle

The cash conversion cycle ranged between 93 and 138 days with notable fluctuations. Periods of shortening were followed by lengthening phases, particularly toward the end where the cycle trended higher. This points to variability in the company's cash flow management efficiency, with a tendency for the cash cycle to extend in later periods, potentially indicating slower cash realization.

Cost of Sales

The cost of sales exhibits notable fluctuations over the observed periods. Starting around 3,199 million USD in the first quarter of 2021, it experienced a peak in the first quarter of 2022 at 5,380 million USD. This peak was followed by a decrease and relative stabilization, with values generally fluctuating between approximately 3,400 million and 4,000 million USD in subsequent quarters. Towards the end of the series, there appears to be a mild upward trend, with the cost reaching 3,855 million USD by the third quarter of 2025.

Inventories (Excluding those Classified in Other Assets)

Inventories show some variability but generally maintain a level in the 5,400 million to 6,600 million USD range throughout the timeline. Starting from 6,402 million USD in early 2021, inventories slightly decreased and fluctuated through 2022 and 2023, with an observable increase towards the end of 2023 and maintaining elevated levels through 2024. The values settle somewhat in the 6,100 to 6,400 million USD range by the middle of 2025, indicating relatively stable inventory holdings with minor fluctuations.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates an inconsistent trend over time, initially increasing from 2.4 in the first quarter of 2021 to around 3.1 in the third quarter of 2022. Following this peak, the ratio declines gradually, falling to approximately 2.25 by the third quarter of 2025. This downward trend in turnover suggests a slower inventory movement in the later periods compared to earlier years, which could imply changes in sales efficiency or inventory management practices.

Summary Insight

The data indicates that while the cost of sales has shown periods of volatility, it generally stabilizes after an initial peak. Inventory levels remain relatively consistent, suggesting controlled stock management despite fluctuations in cost of sales. However, the declining inventory turnover ratio in recent periods points to a reduction in the speed at which inventory is being sold or utilized, which could have implications for working capital efficiency and may warrant further operational review.

The analysis of the quarterly financial data reveals several notable trends in the company's sales, accounts receivable, and receivables turnover over the observed period.

Sales

Sales exhibited a general upward trend throughout the observed quarters, increasing from $10,627 million in March 2021 to $17,276 million by September 2025. There were fluctuations within certain quarters, such as a peak of $15,901 million in March 2022 followed by a slight dip in the latter part of 2022. The growth trajectory appears strong overall, with consistent increases in most quarters, indicating steady market demand or successful revenue generation strategies.

Accounts Receivable, Net of Allowance

Accounts receivable values also increased over the period, moving from $8,235 million in March 2021 to approximately $12,120 million by September 2025. This increase corresponds with rising sales levels but shows some volatility, with peaks and troughs suggesting variations in credit policies, customer payment behaviors, or changes in sales mix. Notably, after peaking around mid-2024, there was a temporary decline by mid-2025 before rising again, indicating some fluctuations in collection periods or debtor management.

Receivables Turnover

Receivables turnover ratios fluctuated between approximately 5.28 and 6.27 during the observed quarters. Higher turnover values, indicating faster collection of receivables, were recorded notably in the second half of 2021 and again in late 2022 and late 2024. Lower turnover ratios appear in early 2023 and mid-2025, suggesting slower collection cycles in those periods. Overall, the ratio demonstrates moderate stability with periodic variations that may reflect operational adjustments or seasonal influences on receivables management.

In summary, the company shows increasing sales accompanied by rising accounts receivable balances, consistent with growth in revenue. The receivables turnover ratio's variability highlights ongoing adjustments in credit and collection practices, but no extreme deviations suggest sustained efficiency in managing receivables relative to sales volume. The patterns suggest a balance between growth and operational control over customer collections.

The analysis of the quarterly financial data reveals several notable trends related to cost of sales, trade accounts payable, and payables turnover over the periods from March 2021 through September 2025.

Cost of Sales

The cost of sales exhibited significant fluctuations throughout the observed quarters. Initially, the figures rose from 3,199 million USD in March 2021 to a peak of 5,380 million USD in March 2022, reflecting a sharp increase within one year. Following that peak, costs decreased and then stabilized between approximately 3,500 and 4,000 million USD for the subsequent periods. Notably, a downward trend appears moving from the end of 2022 into early 2023, after which some recovery occurred. The data suggests periodic variability with no sustained growth trend post-2022 peak.

Trade Accounts Payable

Trade accounts payable demonstrated variability across quarters without a clear uninterrupted trend. Starting from 4,034 million USD in March 2021, the payables fluctuated moderately, showing a decline in mid-2021, followed by recoveries and subsequent ups and downs over time. For example, after a low point of 3,371 million USD in September 2021, payables increased to 4,264 million USD in December 2021. These fluctuations continued throughout the timeline, with values generally oscillating between approximately 3,400 and 4,100 million USD. The pattern does not show consistent expansion or contraction but rather suggests variability in managing payables.

Payables Turnover Ratio

The payables turnover ratio, representing the number of times the company pays off its trade payables during a period, reflected notable changes. Initially increasing from 3.81 times in March 2021 to a peak of 5.16 times in September 2022, this ratio indicates improved efficiency or a faster payment cycle during this period. However, post-September 2022, a gradual decline is observable, settling around values near 3.5 to 4.5 times toward the later quarters, specifically trending down to 3.53 times by September 2025. This diminution could imply a slowing in payment velocity or altered supplier payment terms over recent periods.

Overall, the data reflects a period of increased cost pressures culminating in early 2022, followed by a stabilization phase. Payables management showed attempts to optimize the payment cycle alongside fluctuating liabilities. The payoff rate as captured by the payables turnover ratio reveals a peak efficiency phase around late 2022, with a gradual return to lower turnover frequencies subsequently. These mixed trends suggest dynamic operational and possibly market conditions impacting cost structure and working capital management over time.

Working Capital

The working capital exhibits considerable fluctuations over the analyzed periods. After an initial rise from 548 million USD to a peak of 11,483 million USD by the end of 2022, a noticeable decline follows in early 2023, reaching as low as 6,346 million USD by the first quarter of 2024. Subsequently, the figure increases again, rising to 18,929 million USD by the third quarter of 2025. This suggests periods of both expansion and contraction in operational liquidity or short-term financial management.

Sales

Sales demonstrate a generally upward trajectory throughout the period. Starting at 10,627 million USD in the first quarter of 2021, the sales figures consistently increase despite some quarterly volatility, reaching 17,276 million USD by the third quarter of 2025. This steady growth indicates an overall improvement in revenue generation capacity over time.

Working Capital Turnover Ratio

The working capital turnover ratio displays significant variability, oscillating between high and low points. Early on, it is exceptionally high at 84.97, which is likely an outlier due to the very low starting working capital. Thereafter, it stabilizes within a range approximately between 3.39 and 9.68. Notably, the ratio declines towards the end of the analyzed period, reaching the lowest value of 3.39 by the third quarter of 2025. This decreasing trend could indicate that either working capital is increasing faster than sales or sales are not growing sufficiently relative to working capital, potentially signaling reduced efficiency in the use of working capital.

Interrelationship and Insights

The data reveals an inverse relationship at times between working capital and the working capital turnover ratio. Periods where working capital rises are often accompanied by declines in turnover ratio, suggesting that increases in working capital may not be directly translating into proportional sales growth. Conversely, when working capital dips, turnover ratios tend to improve temporarily, indicating more efficient utilization of resources.

The steadily growing sales figures, despite fluctuations in working capital, reflect resilience in revenue generation. However, the volatility in working capital and its turnover ratio points to potential challenges in managing operational assets and liabilities efficiently over time.

Inventory Turnover Ratio

Over the analyzed periods, the inventory turnover ratio exhibits notable fluctuations with an overall declining trend towards the later periods. Initially, the ratio increased from 2.4 to a peak around 3.1, reflecting improved efficiency in inventory management during mid-2022. However, following this peak, the ratio steadily decreased, reaching approximately 2.25 to 2.27 in the final observed quarters. This decline suggests a reduction in the frequency with which inventory is sold and replaced, potentially indicating slowing sales or an accumulation of stock.

Average Inventory Processing Period

The average inventory processing period generally moves inversely to the inventory turnover ratio, as expected. Starting at 152 days, the period shortened notably to around 118 days by late 2022, aligning with the period of higher turnover. Subsequently, the processing period lengthened again, extending to a peak near 162 days in the last year observed. This extension points to a slower movement of inventory over time, implying either slower sales or increased stock levels, corroborating the trend observed in the turnover ratio.

Overall Trend and Insights

The data reveals an initial phase of improved inventory efficiency followed by a gradual decline. The peak efficiency in mid to late 2022 is succeeded by a reduction in inventory turnover and a lengthening of inventory processing periods through to 2025. This pattern may indicate challenges in inventory management, such as reduced demand, supply chain complexities, or changes in product mix. Continuous monitoring would be advisable to identify underlying causes and address potential operational inefficiencies.

Receivables Turnover Ratio

The receivables turnover ratio exhibited fluctuations over the observed periods without a clear linear trend. Initially, there was an increase from 5.65 to a peak of 6.27 by the end of 2022, indicating improved efficiency in collecting receivables during this time. However, subsequent quarters saw a decline and variations around the mid-5 range, with values oscillating between approximately 5.3 and 6.24. This suggests periods of both improved and weakened receivables management efficiency, highlighting potential volatility or seasonal influences on collection practices.

Average Receivable Collection Period

The average receivable collection period, which inversely relates to the receivables turnover ratio, showed a corresponding pattern. It fluctuated between 58 and 69 days, with an initial trend toward shorter collection periods in mid-2022, reflecting better collection efficiency. Later, values generally stabilized around the mid-60s range. The period saw occasional increases to near 69 days, indicating temporary slowdowns in collections. The overall pattern suggests cyclical variations in the time taken to collect receivables, with some quarters reflecting longer outstanding periods.

Relationship Between Metrics

As expected, the metrics demonstrate an inverse relationship: higher receivables turnover ratios coincide with shorter collection periods, and vice versa. The periods of peak turnover around late 2022 and early 2025 correspond to some of the shortest collection durations, highlighting temporal improvements in receivables management. Conversely, declines in turnover align with lengthened collection periods.

Insights

The data implies that while receivable collection efficiency has experienced positive short-term improvements, it is subject to periodic reversals. This variability suggests the need for ongoing monitoring and potentially enhanced credit and collection policies to stabilize and possibly improve turnover. The company's ability to reduce the average collection period consistently could positively impact cash flow and liquidity.

Average Inventory Processing Period

The average inventory processing period shows a fluctuating trend with a range generally between 118 and 162 days over the analyzed quarters. Initially, there is a decrease from 152 days in March 2021 to a low of 118 days by September 2022. Subsequently, the period increases gradually again, reaching a peak of 162 days in June 2025, indicating slower inventory turnover towards the end of the period.

Average Receivable Collection Period

The average receivable collection period remains relatively stable over time, oscillating mostly between 58 and 69 days. Some minor short-term increases and decreases are noted, but no significant long-term trend is evident. The collection period peaks at 69 days several times, including the last recorded quarter in June 2025, suggesting persistent challenges in reducing the time to collect receivables.

Operating Cycle

The operating cycle exhibits a pattern closely reflecting movements in the inventory processing and receivable collection periods. Starting at 217 days in March 2021, the cycle shortens to approximately 177 days by September 2022, indicating improved operational efficiency during that phase. However, it then extends again, peaking at 230 days in September 2025. This increase corresponds with the rising inventory processing and stable but elevated receivables collection period, suggesting an overall lengthening of the operating cycle.

Overall Insights

The data indicates a phase of improving efficiency between 2021 and late 2022, as demonstrated by shorter inventory processing and operating cycle periods. Following this, the trend reverses, with inventory processing times increasing and the operating cycle lengthening, which may point to supply chain or demand challenges. The consistent and relatively high receivable collection period throughout the timeframe highlights ongoing difficulties in accelerating cash inflows from customers. The overall extension in the operating cycle towards the end of the period may impact liquidity and working capital management.

Payables Turnover Ratio

The payables turnover ratio exhibits variability over the analyzed periods. Initially, there is an upward trend from 3.81 to a peak of 5.16 within the first eight quarters, indicating an increased frequency of paying suppliers. A notable dip is observed in the fourth quarter of 2021, where the ratio drops to 2.96, which may suggest a temporary slowdown in payments or a shift in payable management during that quarter.

Following the peak, the ratio stabilizes between 4.08 and 4.59 for several quarters with moderate fluctuations. From early 2024 onwards, the ratio demonstrates a gradual decline, moving from 4.48 down to 3.53 by the third quarter of 2025, signaling a reduced frequency in settling payables compared to earlier periods.

Average Payables Payment Period (in days)

This metric is inversely related to the payables turnover ratio and reflects the average number of days taken to pay suppliers. The data shows a range from a low of 71 days to a high of 123 days across the periods.

In line with the changes in turnover ratio, the payment period decreases sharply from 96 days in March 2021 to a low of 71 days by the third quarter of 2022, indicating faster payments to suppliers during this timeframe.

Subsequently, the period lengthens, with a notable increase back to 98 days in the last quarter of 2024 and peaking at 103 days by the third quarter of 2025. This elongation corresponds to the declining payables turnover ratio, suggesting a trend of slower payments in more recent quarters.

Overall Trends and Insights

The inverse relationship between the payables turnover ratio and the average payment period is consistent throughout, as expected. Early periods show improved efficiency in payables management, with quicker payment cycles and higher turnover ratios. However, starting from late 2023, the trend reverses, indicating a strategic or operational shift towards extending payment terms.

This transition may reflect changing supplier negotiations, cash flow management strategies, or other external factors influencing the timing of payments. The variability and recent decline in turnover ratios alongside an increasing payment period could warrant further investigation into the underlying causes and potential impacts on supplier relationships.

Inventory Processing Period

The average inventory processing period fluctuates across the analyzed quarters. Starting at 152 days in early 2021, it drops to a low of 118 days by late 2022, indicating improved inventory turnover. However, from early 2023 onward, there is a gradual increase, reaching up to 162 days by mid-2025, suggesting a slower inventory movement in recent periods.

Receivable Collection Period

The receivable collection period remains relatively stable with minor fluctuations. It starts around 65 days in early 2021, experiences slight decreases and increases, maintaining mostly within the 58 to 69 days range. Notably, the period spikes to 69 days several times, including in late 2021, mid-2023, and mid-2025, indicating occasions of delayed collections, but overall the collection cycle does not show a consistent directional trend.

Payables Payment Period

The payables payment period exhibits variability, beginning at 96 days in early 2021 and dropping to as low as 71 days in late 2022. This suggests a phase where the company accelerated payments to suppliers. After that, the payment period increases again, reaching 103 days by mid-2025, implying an extension in payment terms or deferred payments in the more recent quarters.

Cash Conversion Cycle

The cash conversion cycle shows notable fluctuations. Beginning at 121 days, it decreases to around 93 days toward the end of 2022, indicating improved liquidity as cash is tied up for a shorter duration. However, from 2023 onwards, the cycle lengthens again, peaking at 138 days in early 2024. By mid-2025, the cycle remains elevated around 126 days, reflecting increased days required to convert resources into cash compared to the lowest observed point.

Overall Analysis

Overall, the data reveals that the company had periods of operational efficiency improvement, particularly in inventory handling and cash cycle duration until late 2022. From 2023 forward, a trend toward elongation in inventory processing and cash conversion cycles is evident, which could signal challenges in working capital management or strategic shifts in operations. The receivable collection period largely remains consistent, while the payables period initially shortened but extended again in recent periods, affecting the overall cash flow timings.