Merck & Co. Inc. (NYSE:MRK)

The analysis of the financial ratios and periods reveals several notable trends and fluctuations over the observed time frame.

Inventory Turnover

The inventory turnover ratio shows moderate variability, beginning at 2.45 in March 2020 and reaching a peak of 3.10 in December 2022. Afterward, it gradually declines to around 2.43 by March 2025. This suggests a period of improving inventory efficiency up to late 2022, followed by a slight reduction in turnover velocity, possibly indicating slower inventory movement or increased stock levels in recent quarters.

Receivables Turnover

The receivables turnover ratio fluctuates between approximately 5.28 and 6.27, demonstrating some instability but with an overall relatively stable range. It climbs to a high of 6.27 in December 2022, indicating improved collection efficiency at that time, then dips and recovers slightly by March 2025. This pattern suggests fluctuating but controlled credit management performance.

Payables Turnover

The payables turnover ratio varies considerably, rising from a low near 2.96 in March 2022 to a high of 5.16 in December 2021, indicating that the company was paying its suppliers more quickly during late 2021. However, it declines afterward and remains in the range of approximately 3.7 to 4.6 in subsequent periods, suggesting a shift toward longer payment terms or slower payments in more recent quarters.

Working Capital Turnover

The working capital turnover ratio exhibits significant volatility, starting extremely high at 109.83 in March 2020, then dropping sharply to single digits by the end of 2020 and staying relatively stable but low thereafter. The high initial figure likely reflects very low net working capital or accounting adjustments. The subsequent stabilization around the 5 to 9 range indicates consistent utilization of working capital relative to sales in later periods.

Average Inventory Processing Period

Days inventory outstanding varies between about 118 and 159 days. There is a general downward trend from higher values in the early period (159 days in March 2021) to lower values near 118 days in late 2021, followed by a gradual increase approaching 150 days by March 2025. This suggests an improvement in inventory turnover efficiency followed by a slow return to longer holding periods.

Average Receivable Collection Period

The receivable collection period generally fluctuates between 58 and 69 days. It increased slightly from 60 days in early 2020 to peaks near 69 days during mid-2021 and mid-2023, suggesting more extended credit terms or slower customer payments during those periods, followed by some improvements.

Operating Cycle

The operating cycle, representing the total time to convert inventory and receivables into cash, ranges from about 177 to 228 days. It peaks in March 2021 at 228 days, indicating slower overall operations then, with periods of improvement below 180 days in late 2021, followed by gradual lengthening through early 2025, aligning with trends observed in inventory and receivables periods.

Average Payables Payment Period

This period shows an overall trend of decline from 123 days in March 2021 to values around 71 to 108 days in subsequent periods, reflecting shortened payment terms initially, then stabilization in a moderate range. The decline from a high in early 2021 suggests improved cash flow management through delayed payments, later giving way to a moderate increase, signaling a balancing of supplier payments.

Cash Conversion Cycle

The cash conversion cycle exhibits fluctuations between approximately 93 and 138 days. It reached a low near 93 days in late 2022, representing efficient cash flow conversion at that time, followed by an increase to 138 days by early 2024, before decreasing again. These swings indicate variable efficiency in managing the timing between cash payments and receipts throughout the period.

Overall, the data reveals periods of improvement in inventory and receivables management during 2021 and 2022, followed by some reversal or stabilization at slightly less efficient levels through 2024 and early 2025. The payables payment period and working capital turnover likewise exhibit variability, reflecting changing operational and cash flow strategies. The cash conversion cycle's fluctuations underscore the ongoing adjustments in balancing working capital components to optimize liquidity.

Cost of Sales

The cost of sales exhibits significant fluctuations over the observed periods. It starts at 3,312 million US dollars in March 2020, dipping slightly in the subsequent quarters until December 2020 when it reaches a notable peak of 5,533 million. Thereafter, the cost drops again in early 2021 but shows a moderate upward trend towards the end of 2021. In 2022, the values reveal considerable variability, peaking again in March 2022 at 5,380 million but subsequently declining in later quarters. The data through 2023 and into early 2025 suggest a general downward trend with occasional increases, ending at 3,419 million in March 2025, which is lower compared to the initial period.

Inventories (Excluding Inventories Classified in Other Assets)

The inventory levels demonstrate a general upward progression from March 2020 through late 2021, starting at 5,846 million and increasing to 5,953 million by December 2021, with minor fluctuations. However, from early 2022 onwards, inventory levels appear to oscillate around the 6,000 million mark with some periods of decline, notably around mid-2022 and again near the end of 2024. Despite these short-term variations, inventories maintain an overall relatively stable level, ending at 6,196 million in March 2025, indicating a moderate increase compared to the start of the observed timeline.

Inventory Turnover Ratio

Beginning in December 2020, the inventory turnover ratio data is available and shows initial values around 2.45, with a peak at 3.10 in December 2022. This peak suggests a period of more efficient inventory management or increased sales relative to inventory held. Following the peak, the turnover ratio generally trends downward through 2023 and into 2025, reaching 2.43 by March 2025. The declining turnover ratio in recent periods may indicate a decrease in sales efficiency or an increase in inventory levels relative to sales.

Overall Analysis

The interplay between cost of sales, inventories, and inventory turnover reveals important operational shifts. Periods of increased cost of sales generally correspond with higher inventory levels and increased turnover ratios, indicative of increased demand or sales activities. Conversely, the gradual decline in turnover ratios combined with fluctuating but stable inventory levels toward the later periods may reflect slower inventory movement or sales growth challenges. The notable volatility in cost of sales may be influenced by external market factors or internal operational changes, necessitating further examination of underlying drivers.

Sales

The sales figures demonstrate noticeable fluctuations over the analyzed periods. Initially, sales declined from US$12,057 million in March 2020 to US$10,627 million in March 2021, showing some volatility driven by external conditions likely impacting the pharmaceutical sector. Subsequently, there is a significant rebound beginning in March 2022 with sales reaching US$15,901 million, although performance varies quarter-to-quarter thereafter. Peaks are observed around September and December quarters, with values surpassing US$16,000 million in late 2024. Despite periodic dips (e.g., June and December 2023), the overall trend from early 2022 onward indicates an upward trajectory in sales volume.

Accounts Receivable, Net

The accounts receivable balances show a general rising trend from March 2020 through mid-2024. Starting at US$8,182 million in March 2020, the balance climbs to a high of over US$11,642 million by September 2024. This growth suggests increased credit extended to customers or lengthening collection periods. Notably, after peaking in June 2024 at US$11,642 million, there is a slight decline in the following quarters, falling to US$10,278 million by March 2025. The movement broadly aligns with sales trends, reflecting the company's credit management relative to sales volumes.

Receivables Turnover Ratio

The receivables turnover ratio data begin from December 2020, with values ranging between 5.28 and 6.27 times annually. The ratio exhibits moderate fluctuations without a clear upward or downward pattern. The highest turnover is 6.27 in March 2022, suggesting more efficient collections at that time. Subsequently, the turnover reduces to a low of 5.29 (September 2023) before slightly increasing again. This ratio's relative stability, despite some variation, indicates consistent credit and collection practices, even as accounts receivable and sales volumes grow.

The quarterly financial data reveals several notable trends in the company's cost of sales, trade accounts payable, and payables turnover over the observed periods.

Cost of Sales

The cost of sales demonstrates considerable fluctuations throughout the quarters. Initially, the value ranged around the low 3000s (US$ millions) from March 2020 through September 2020, but a significant spike is observed in December 2020, reaching 5533 million. Following this peak, the cost generally trended downward with intermittent variations, including another pronounced peak at March 2022 (5380 million). From mid-2022 onwards, the cost of sales showed moderate fluctuations mostly between 3400 and 4300 million, with a slight downtrend approaching March 2025, where it decreased to 3419 million.

Trade Accounts Payable

Trade accounts payable figures also exhibit variability across the quarters with no clear linear trend. Starting at 3572 million in March 2020, the values oscillate, with periods of increase and decline. Relatively high values are seen in December 2020 (4594 million) and December 2021 (4609 million). Subsequent quarters reflect a pattern of fluctuations within the range of approximately 3400 to 4100 million. By the last recorded quarter, March 2025, trade payables reach 3784 million, indicating stability within this range without significant deviations or directional trends.

Payables Turnover

Payables turnover ratio was not reported until December 2020. From its first appearance, the ratio shows an increasing trend from 3.37 to a peak of 5.16 in December 2022, suggesting improved efficiency in managing payments to suppliers over this period. After December 2022, the ratio slightly declines but remains generally elevated relative to earlier observations, fluctuating between approximately 3.7 and 4.6 through to March 2025. This indicates the company maintained relatively stronger payment turnover performance in recent periods compared to the initial reported quarter.

Overall, the data indicates volatility in cost and payables levels, with some cyclical spikes, while the payables turnover ratio improved significantly after its initial measurement. This improvement suggests enhanced operational efficiency or changes in payment practices, despite the fluctuating nominal values of costs and payables.

The financial data reveals several notable trends regarding working capital, sales, and working capital turnover over a multi-year period.

Working Capital

Working capital experienced significant fluctuations throughout the observed quarters. It started at a moderate level around 2,691 million USD and spiked notably in mid-2020, reaching a peak above 7,300 million USD. This peak was followed by a decline and subsequent oscillations. From 2022 onward, the levels of working capital mostly remained elevated compared to early 2020, with minor variations around 6,000 to 12,000 million USD. Some quarters in 2023 and 2024 saw renewed spikes, particularly in mid-2024, suggesting periodic increases in short-term assets relative to liabilities.

Sales

The sales figures displayed an overall upward trajectory from early 2020 through 2025. Starting with approximately 12,000 million USD, sales showed some volatility but generally increased, peaking multiple times across quarters above 16,000 million USD. The pattern indicates growth with seasonal or quarter-specific fluctuations, as occasional dips occurred but were followed by recoveries. The consistency of higher sales in later years compared to the initial period emphasizes an expanding revenue base.

Working Capital Turnover

Working capital turnover ratios varied considerably during the period. Early data points are not available; however, from late 2020 onward, ratios ranged mainly between 5 and 9, indicating how efficiently working capital was used to generate sales. Notably, certain quarters featured higher turnover rates close to or exceeding 9, linked with relatively lower working capital and steady or stronger sales, suggesting increased operational efficiency. Conversely, lower turnover ratios corresponded with quarters of higher working capital or less robust sales growth, hinting at temporal inefficiencies in asset utilization.

In summary, the data indicates a pattern of growth in sales alongside fluctuating working capital levels, with working capital turnover reflecting periods of varying efficiency. The company appears to manage capital dynamically, aligning resource allocation with sales trends, although occasional fluctuations in turnover suggest room for optimizing capital usage.

Inventory Turnover Trend

The inventory turnover ratio exhibits fluctuations over the observed quarters from March 31, 2020, through March 31, 2025. Initially recorded at 2.45 in the first available quarter, the ratio slightly declined to 2.40 in June 2020 before increasing to a peak of 3.10 by December 2022. Subsequently, the ratio progressively decreased, reaching approximately 2.43 by March 2025. This pattern suggests a peak in inventory efficiency around late 2022, followed by a moderate reduction towards early 2025.

Average Inventory Processing Period

The average inventory processing period, measured in days, shows an inverse relationship with the inventory turnover ratio. Starting at 149 days in March 2020, the period briefly extended to 159 days by March 2022, corresponding to a phase of lower turnover ratios. The period then shortened to a low of 118 days in December 2022, aligning with the peak inventory turnover ratio. Following this, a gradual increase in processing days occurred, reaching 150 days by March 2025. This indicates a lengthening in inventory holding times after the late 2022 low point.

Overall Insights

The data reflect cyclical changes in inventory management efficiency. An improvement phase is observed culminating in late 2022, marked by higher turnover and shorter inventory processing periods. However, from 2023 onward, the trend reverses, showing a slight decline in turnover and an increase in processing duration. These trends may suggest shifts in operational strategy, market demand, or supply chain conditions affecting inventory control over the five-year horizon.

The receivables turnover ratio demonstrates moderate fluctuations over the observed periods, oscillating between a low of 5.28 and a high of 6.27. The ratio initially rises from 6.11 to 6.27 between the first recorded quarter and the quarter ending December 31, 2021, indicating improved efficiency in collecting receivables during this interval. Following this peak, a decline is observed through mid-2024, reaching approximately 5.37, before experiencing a subsequent recovery to 6.24 and ending at 5.92 by March 31, 2025.

In terms of the average receivable collection period, the data inversely correspond with the turnover ratio trends, as expected. The number of days shows a gradual increase from 60 days in March 31, 2021, peaking at 69 days in the quarter ending March 31, 2022, signaling a slower collection cycle. After dipping back to 58 days in the quarter ending December 31, 2022, a moderate rise to 69 days occurs again in June 30, 2023. Following this point, the collection period stabilizes, ranging between 62 to 68 days, before dropping to 58 days by March 31, 2025.

Overall, the data suggest some variability in the company’s effectiveness at managing its receivables, with periods of both contraction and extension in the collection cycle. While the receivables turnover ratio and average collection period tend to move inversely as anticipated, the fluctuations imply intermittent shifts in credit and collection policies or changes in customer payment behavior. The relatively narrow range of variation in both metrics indicates a generally stable receivables management approach, though the recent decrease in collection days toward the end of the period points to a potential improvement in collection efficiency.

Receivables Turnover Ratio

Moderate fluctuations between 5.28 and 6.27 over the period observed.

Initial improvement rising to 6.27 by December 31, 2021, followed by a decline and later recovery.

Ends at 5.92 by March 31, 2025, indicating a near-return to previous efficiency levels.

Average Receivable Collection Period

Ranges between 58 to 69 days, showing variability in collection timing.

Increased suddenly to 69 days early in the series and again in mid-2023 before stabilizing.

Decline to 58 days by the final quarter suggests improved collection efficiency.

Overall Insights

The inverse relationship between receivables turnover and collection period is consistent.

Fluctuations may reflect shifts in credit policy or customer payment patterns.

The general stability of both ratios implies controlled receivables management with some recent gains in collection speed.

The financial data reveals distinct trends in the company's inventory, receivables, and overall operating cycle over the reported periods.

Average Inventory Processing Period

The average inventory processing period exhibited fluctuations but generally remained within a range of approximately 110 to 160 days. Starting at 149 days in March 2021, there was a slight increase until March 2022 when it peaked around 159 days. Subsequently, the period showed a decreasing trend through late 2022 reaching approximately 118 days in December 2022. From 2023 onward, the inventory processing days increased gradually, reaching around 150 days by the last recorded quarter in March 2025, indicating a lengthening cycle in inventory turnover.

Average Receivable Collection Period

The average receivable collection period started at 60 days in March 2021, increasing to a peak of approximately 69 days by March 2022 and again in June 2023. Thereafter, it demonstrated variability, with values fluctuating between 58 and 69 days through to March 2025, ultimately settling around 62 days. This reflects moderate oscillations in the efficiency of receivables collection without a clear long-term increasing or decreasing trend.

Operating Cycle

The operating cycle, which combines inventory processing and receivable collection periods, followed trends similar to the individual components. Beginning at 209 days in March 2021, it increased to a high point near 228 days in March 2022. Following this, a decline occurred with lows of around 177 days observed in December 2021 and values gently rising again afterward. Throughout 2023 to early 2025, the operating cycle remained largely stable, fluctuating near the 200 to 220 days range, suggesting persistent cyclical activity in operation timing.

Overall, the data indicates that while there are cyclical movements in inventory and receivables management, the company experienced a slightly elongated inventory processing period in recent years, balanced partly by relatively stable receivable collection times. The operating cycle reflects these movements with periods of increase followed by partial normalization, implying ongoing adjustments in working capital management practices.

The payables turnover ratio demonstrates a generally increasing trend from the beginning of the observed period in early 2020 through late 2023, followed by some fluctuation in subsequent quarters. Initially, the ratio rises from 3.37 to a peak of 5.16 by December 2021, indicating an improvement in the frequency with which payables are paid over that timeframe. After this peak, the ratio declines moderately but remains at relatively high levels compared to early 2020 through 2025, fluctuating mostly around the 4.0 to 4.6 range before dipping toward the end of the period to around 3.7-4.0.

In contrast, the average payables payment period, expressed in number of days, shows an inverse but consistent relationship with the payables turnover. This metric decreases from 108 days in March 2020 to a low of 71 days by December 2021, reflecting faster payment cycles and potentially improved working capital management. Subsequently, the payment period increases again, reaching values near or above 90 days in the last few quarters, which suggests a slight extension in the duration taken to settle payables compared to the trough in late 2021.

Payables Turnover Ratio

Started at 3.37 in early 2020, the ratio increased steadily to reach a peak of 5.16 by the end of 2021, showing enhanced efficiency in payables management during this phase. Thereafter, the ratio exhibited moderate volatility while generally remaining higher than the initial value, ending near 3.98 to 4.39 toward the end of the observation period.

Average Payables Payment Period

This metric decreased from 108 days in early 2020 to a low of 71 days by late 2021, indicating a faster payment cycle. However, after 2021, there was a tendency toward lengthening payment terms, with values increasing to approximately 90 days by the end of the observed period.

Overall, the data suggests that the company initially improved its payables management, reducing the payment period and increasing the turnover ratio. However, from 2022 onwards, these improvements were partially reversed, with payment periods lengthening and turnover ratios declining slightly. These fluctuations may reflect changes in supplier negotiations, liquidity strategies, or market conditions influencing the timing of payables settlements.

The analysis of the quarterly financial periods reveals several notable trends across key efficiency metrics: inventory processing, receivables collection, payables payment, and the overall cash conversion cycle.

Average Inventory Processing Period

The inventory processing period demonstrates some volatility but generally remains within a moderate range. Starting from 149 days in early 2021, the period decreases to a low of 118 days by the end of 2021. Through 2022 and into 2023, this metric fluctuates slightly, increasing again to approximately 139-150 days by early 2024 and into 2025, indicating a rising trend toward longer inventory holding times in recent quarters.

Average Receivable Collection Period

The receivable collection period shows a gradual upward trend from around 60 days in early 2021 to a peak near 69 days in late 2021 and mid-2023. Some fluctuations occur afterward, with periods ranging between 58 to 68 days. This suggests a degree of variability but with a modest extension in the time taken to collect receivables compared to the starting point.

Average Payables Payment Period

The payables payment period demonstrates considerable variability. Early 2021 sees a drop from 108 days to 80 days at the end of that year, followed by a surge to 123 days in early 2022. Subsequently, this period falls back to the 70-90 day range for much of 2022 and 2023. By 2024 and early 2025, the period again extends to around 90-98 days before slightly decreasing to 92 days. This reflects a strategy potentially balancing between extending payment terms and maintaining supplier relations.

Cash Conversion Cycle

The cash conversion cycle fluctuates across the reported periods. It is initially around 101 days in early 2021, peaks near 120 days by the year's end, and experiences moderate declines and rises through 2022 and 2023. Notably, it reaches a high of 138 days twice in 2024 before declining toward the end of the data set to approximately 107-120 days. These movements indicate varying degrees of efficiency in converting resources into cash, with periods of elongation that may impact liquidity.

Overall, the data indicates cyclical and somewhat increasing durations in inventory holding and receivables collection, while payables payment periods vary, potentially reflecting tactical management of cash outflows. The variability in the cash conversion cycle underscores the need for ongoing attention to working capital management to optimize operational efficiency and cash flow timing.