Merck & Co. Inc. (NYSE:MRK)

Inventory Turnover

The inventory turnover ratio demonstrated fluctuations over the analyzed periods. Initially, it increased from 2.4 to a peak around 3.1 by late 2021 and early 2022, indicating more efficient inventory management during that timeframe. However, from 2023 onward, there was a gradual decline, with the ratio decreasing to approximately 2.25 by mid-2025, suggesting a slower inventory movement in recent periods.

Receivables Turnover

This ratio exhibited moderate variability, with values mostly ranging between 5.3 and 6.3. Notably, there were peaks around the end of 2022 and late 2024, reaching ratios above 6, reflecting periods of improved receivables collection efficiency. However, some declines occurred afterward, indicating occasional slower collection cycles.

Payables Turnover

Payables turnover displayed more volatility, with values oscillating between roughly 2.96 and 5.16. Early in the reference period, the ratio increased to over 4.5 but dropped sharply in late 2021. Subsequently, it rose again in 2022 before trending downward towards the end of the dataset. This pattern suggests varying payment strategies impacting liabilities turnover.

Working Capital Turnover

The working capital turnover ratio showed significant fluctuations. It was especially volatile in 2021, with an anomalously high initial value of 84.97, which appears to be an outlier relative to subsequent data. Aside from this, the ratio generally hovered between 5 and 9, with peaks around early and late 2023. The variability indicates changes in the management of current assets relative to current liabilities.

Average Inventory Processing Period

The average number of days inventory remained before sale decreased from 152 days in early 2021 to around 118 days in late 2022, reflecting improved inventory turnover speed. However, from 2023 onwards, the period gradually increased again, reaching 162 days by mid-2025, indicating lengthening inventory holding times and potentially reduced operational efficiency in inventory management.

Average Receivable Collection Period

The collection period oscillated between 58 and 69 days across most periods. The figure showed slight improvement during 2022 with a dip near 58 days, but overall remained relatively stable with minor fluctuations, indicating steady receivables management.

Operating Cycle

This cycle, representing the total time between inventory acquisition and cash collection, showed a decrease from 217 days in early 2021 to a low of 177 days in late 2022. However, from 2023 onwards, there was an upward trend, rising back above 220 days by early 2025. This suggests that while operations were becoming more efficient initially, the turnaround time lengthened again in recent periods.

Average Payables Payment Period

The duration of creditor payments was quite variable. It shortened from 96 days in early 2021 to about 71 days in late 2022, indicating a faster payment cycle. However, after early 2023, the period tended to increase again, reaching 95 days by mid-2025, implying a lengthening of payment obligations and possible strategic use of payables financing.

Cash Conversion Cycle

This metric, combining inventory processing, receivables collection, and payables payment periods, fluctuated between 93 and 138 days. Notably, it improved to about 93 days near the end of 2022, showing enhanced liquidity and operational efficiency. Afterward, the cycle widened again, peaking around 138 days in early 2024 before slightly declining but remaining above 120 days by mid-2025. These changes reflect shifts in working capital management strategies over time.

The analysis of the quarterly financial data reveals several notable trends within the cost of sales, inventories, and inventory turnover over the observed periods.

Cost of Sales

The cost of sales demonstrates a fluctuating yet generally downward trend in the most recent quarters compared to earlier periods. Initially, the values rose significantly reaching a peak near the first quarter of 2022, with a maximum around US$5380 million. Following this peak, the cost of sales decreased and exhibited volatility, settling into a range closer to US$3400 million to US$3900 million in the latest quarters. This pattern indicates periods of increased production or sales activity mid-way through the timeline, with a relative stabilization or cost control in the latter parts.

Inventories

Inventory levels show a general upward progression over the entire timeframe. Starting from approximately US$6402 million, inventories declined somewhat in the middle periods down to around US$5499 million, before consistently increasing to reach approximately US$6601 million in the most recent quarter. This gradual increase suggests an accumulation of stock or a strategic build-up of inventory, possibly reflecting expectations of future demand or precautionary measures against supply chain uncertainties.

Inventory Turnover Ratio

The inventory turnover ratio fluctuates with a notable peak around mid-2022 where it reached values just above 3.00, signaling more efficient inventory management or faster sales relative to inventory at that time. However, following this peak, the ratio gradually declined to approximately 2.25 by the end of the latest quarter. This decline points towards slower inventory movement or increased inventory holdings relative to sales, which aligns with the observed increase in inventory levels.

In summary, the cost of sales showed a peak and then a moderate decline, inventories steadily accumulated over time, and the inventory turnover ratio reflects higher efficiency mid-period followed by a gradual reduction. Collectively, these trends may indicate shifting operational dynamics, including changes in sales volumes, cost management, and inventory policies over the examined quarters.

The financial analysis over the observed periods reveals several noteworthy trends in sales, accounts receivable, and receivables turnover ratios.

Sales

Sales have demonstrated a general upward trajectory with some fluctuations. From the first quarter of 2021 to the first quarter of 2022, sales increased significantly from $10,627 million to $15,901 million. However, during 2022, sales showed variability, peaking in the third quarter and then declining towards the end of the year. In 2023 and early 2024, sales continued to fluctuate but maintained a relatively high level, ranging between approximately $14,600 million and $16,600 million. Towards the end of 2024 and into early 2025, sales experienced a moderate decline, settling in the mid-$15,000 million range.

Accounts Receivable, Net of Allowance for Doubtful Accounts

The balances in accounts receivable grew substantially over the review period, starting at $8,235 million in the first quarter of 2021 and rising to $11,846 million by the second quarter of 2025. The increase was relatively steady with minor quarters of decline, signaling greater credit sales or extended collection periods. Notably, accounts receivable rose sharply during early 2023 and remained elevated through 2024, suggesting a buildup of receivables relative to sales during that timeframe.

Receivables Turnover Ratio

The receivables turnover ratio exhibited some variability, indicating fluctuations in the efficiency with which the company collects its receivables. The ratio started at 5.65 in the first quarter of 2021, peaking at 6.27 in the fourth quarter of 2022, which reflects faster collections. However, after this peak, the turnover ratio generally declined, reaching a low of 5.29 in the second quarter of 2023, and remained somewhat volatile around 5.3 to 6.2 thereafter. This decline towards 2025 suggests some deceleration in collection efficiency despite higher levels of accounts receivable.

Overall, while sales growth has been positive with seasonal and periodic fluctuations, the increase in accounts receivable alongside a declining receivables turnover ratio in recent periods suggests potential challenges in cash collection. This could imply either extended credit terms or slower payment by customers, which are critical factors for working capital management and liquidity considerations.

The quarterly data reflects fluctuations and certain trends in the company's cost of sales, trade accounts payable, and payables turnover ratio over the observed period.

Cost of Sales

The cost of sales demonstrates a variable trend with notable peaks and troughs. Starting at around 3,199 million USD in the first quarter of 2021, it increased to 5,380 million USD by the first quarter of 2022, representing a significant jump. After this peak, it declined somewhat but remained elevated relative to the early 2021 levels. Throughout 2023 and into 2024, the cost of sales exhibits fluctuations generally between 3,500 and 4,000 million USD, with occasional spikes, such as in the third quarter of 2024. By mid-2025, the cost appears to stabilize slightly above 3,400 million USD. This pattern suggests periods of increased production or procurement costs followed by stabilization phases.

Trade Accounts Payable

Trade accounts payable values also fluctuate within a similar range as the cost of sales but do not mirror it exactly. The payable amount starts high in early 2021 at over 4,000 million USD, drops mid-2021, and rises again sharply by the end of that year. Over the subsequent quarters, the payable balances variably increase and decrease without a clear long-term upward or downward trajectory, generally ranging between approximately 3,300 and 4,100 million USD. Peaks tend to appear toward year-ends and occasionally in mid-year, suggesting seasonal or operational cycle effects on payment timing.

Payables Turnover Ratio

The payables turnover ratio exhibits some variability with values mostly oscillating between 3.7 and 5.2. This ratio peaked around the third quarter of 2022 at over 5.1, indicating relatively faster payment cycles at that time. Subsequently, turnover ratios trended downwards to values closer to 3.7 by mid-2025, implying a gradual slowing in the rate at which payables are settled. However, fluctuations remain evident quarter-to-quarter, reflecting varying payment practices or changes in credit terms. The ratio's decline toward recent quarters points to a potential extension of creditor payment periods or slower cash outflows concerning payables.

Overall, the data reveal a dynamic operational environment with cost and payable figures rising and falling in response to business activity levels. The payables turnover ratio, while variable, indicates a slight trend toward longer payment durations in recent periods. These trends can inform analyses regarding liquidity management, operational efficiency, and working capital optimization strategies.

Working Capital

The working capital exhibits significant fluctuations over the observed periods, displaying an initial sharp increase from 548 million US dollars in March 2021 to a peak of 11,483 million by December 2022. Subsequently, it declines notably in early 2023, reaching a low of 6,474 million by December 2023. Afterward, the working capital recovers with fluctuations, reaching 12,145 million by June 2024 before a slight decrease and stabilization around 10,000 to 11,000 million in subsequent quarters through mid-2025.

Sales

Sales show a generally upward trend with some volatility across the quarters. Starting at 10,627 million US dollars in the first quarter of 2021, sales increase steadily, peaking at 16,657 million in September 2024. There are intermittent declines, such as between the fourth quarter of 2022 and the second quarter of 2023, but the overall trajectory remains positive, with sales generally rising over the four-year period.

Working Capital Turnover

The working capital turnover ratio experiences considerable variability. It starts at a very high level of 84.97 in the first quarter of 2021, which appears anomalous compared to subsequent periods. Following this, the ratio generally ranges between approximately 5 and 9, indicating fluctuations in the efficiency of working capital utilization relative to sales. Notable peaks are observed in December 2023 (9.29) and March 2024 (9.68), while troughs occur around December 2022 (5.16) and June 2024 (5.14). The ratio stabilizes towards the later periods, fluctuating around 5.7 to 6.2.

Overall Trends and Insights

The data indicates that while sales steadily increase over time, working capital shows more volatility, which affects the working capital turnover ratio. Periods of higher working capital do not always correspond to proportionately higher sales, leading to lower turnover ratios and suggesting potential inefficiencies or strategic changes in asset management. Conversely, periods with reduced working capital often see improved turnover ratios, indicating more efficient use of resources. The fluctuations could reflect varying operational, inventory, or receivables management strategies in response to market or internal factors. The stabilization of turnover ratios in the later quarters may suggest improved alignment between working capital management and sales generation.

The analysis of the quarterly data reveals that the inventory turnover ratio exhibits fluctuations over the observed periods. Initially, there is a moderate upward trend from 2.4 to approximately 3.1 between March 2021 and September 2022, indicating improvements in inventory management efficiency during this span. However, following this peak, a gradual decline in the turnover ratio is noted, decreasing to 2.25 by June 2025, which may suggest a deceleration in inventory movement or potential challenges in sales velocity or inventory control.

Correspondingly, the average inventory processing period, expressed in days, demonstrates an inverse pattern relative to the turnover ratio. It starts relatively high at 152 days, declines steadily to a low near 118 days in late 2022, reflecting a more rapid conversion of inventory into sales. Subsequently, this period gradually extends again, reaching 162 days by March 2025, indicating a slower inventory processing pace and potentially increased holding times.

Inventory Turnover Ratio

Shows an initial improvement, peaking around late 2022, followed by a gradual decline through mid-2025.

Average Inventory Processing Period

Decreases initially, indicating faster inventory movement, with a subsequent increase that points to slower processing in recent periods.

The inverse relationship between these two metrics aligns with expectations, as higher turnover typically corresponds with shorter inventory processing times. The trends suggest that after a period of optimized inventory management, the company may be facing challenges such as excess inventory buildup or weaker sales, which could warrant further investigation to maintain operational efficiency.

Receivables Turnover

The receivables turnover ratio exhibits moderate fluctuations over the analyzed period. Initially, the ratio held steady around 5.5 to 6.0, with a peak of 6.27 observed at the end of 2022. Following this peak, the turnover ratio experienced a decline at different points, dropping to approximately 5.29 by mid-2023, then gradually improving toward the end of 2024 with a value of 6.24 before declining again approaching mid-2025. These variations indicate intermittent changes in the efficiency of the company's collection of receivables, suggesting periodic shifts in sales credit policies or customer payment behaviors.

Average Receivable Collection Period

The average collection period in days generally mirrors the inverse pattern of the receivables turnover ratio, fluctuating between 58 and 69 days. The period lengthened to a high of 69 days during late 2021 and mid-2023, indicating slower collections during these intervals. Conversely, a shorter collection period near 58 days occurred at the end of 2022 and again in late 2024, reflecting improved efficiency in receivables management. Overall, the collection period demonstrates a cyclical pattern but remains within a relatively narrow range, indicating a stable yet occasionally fluctuating receivables collection process.

Summary

The data reveals that throughout the assessed timeframe, the company maintained a generally consistent receivables turnover and collection cycle, albeit with some variability. Peaks in turnover correspond with shorter collection periods, while dips relate to longer collection days. This cyclical behavior may reflect external market conditions, operational changes, or client payment terms adjustments. No extreme deviations or trends indicating sustained deterioration or significant improvement are present, suggesting the receivables management process remains under control but somewhat sensitive to short-term factors.

Average Inventory Processing Period

The average inventory processing period exhibits notable fluctuations over the analyzed quarters. It started at 152 days in March 2021, decreased to a low of 118 days in September 2022, and subsequently increased with minor oscillations to reach 162 days by June 2025. This pattern indicates variability in inventory turnover efficiency, with a period of improvement followed by a gradual lengthening of inventory holding times towards the end of the timeline.

Average Receivable Collection Period

The average receivable collection period demonstrates a somewhat cyclical behavior within a moderate range. It began at 65 days in March 2021, showed a decreasing trend reaching down to 58 days in December 2022 and June 2025, interspersed with intermittent increases, including peaks at 69 days in December 2021 and June 2023. Overall, the collection period remains relatively stable, suggesting consistent credit management practices despite short-term variations.

Operating Cycle

The operating cycle combines inventory processing and receivable collection periods and reveals a pattern reflecting the movements seen in the two components. Starting at 217 days in March 2021, it decreased to a low of 177 days in September 2022, then progressively increased to 230 days by March 2025. The extended operating cycle towards the end of the period suggests a lengthening cash conversion timeline, potentially due to slower inventory turnover or delayed receivables collection.

Payables Turnover

The payables turnover ratio exhibited fluctuations over the observed periods. Initially, it trended upward from 3.81 to a peak of 5.16 in September 2022, signaling more frequent payments to suppliers during this timeframe. However, after this peak, the ratio generally declined, dropping to 3.72 by December 2024 before slightly recovering to 3.82 in June 2025. This pattern suggests a period of improved efficiency in managing payables followed by a gradual slowdown.

Average Payables Payment Period

The average payables payment period moved inversely to the payables turnover ratio, fluctuating between 71 and 123 days. It started relatively high at 96 days in March 2021, reached a maximum of 123 days at the end of 2021, then decreased steadily to a low of 71 days by September 2022. Following this, the period increased again, peaking at 98 days in December 2024, before a slight reduction to 95 days by June 2025. These changes indicate varying payment behavior, oscillating between quicker payments and extended payment terms.

Overall Insights

The data indicate a cyclical pattern in payables management, with periods of accelerated payments followed by intervals of extended payment timelines. The inverse relationship between payables turnover and payment period is consistent with typical financial behavior, where increased turnover corresponds to shorter payment cycles and vice versa. The recent trend suggests a modest shift towards longer payment durations, potentially reflecting strategic cash flow management or changes in supplier payment agreements.

Inventory Processing Period

The average inventory processing period exhibits fluctuations over the analyzed timeframe. Initially, it decreased from 152 days in March 2021 to around 118 days by September 2022, indicating an improvement in inventory turnover. Subsequently, it increased again reaching 162 days by June 2025, suggesting a lengthening of the inventory holding period towards the end of the period.

Receivable Collection Period

This metric remains relatively stable throughout the periods, generally ranging between 58 and 69 days. Some minor fluctuations are apparent, with slight increases and decreases, but no clear upward or downward trend is evident. This suggests consistent management of receivables and collection practices over the years.

Payables Payment Period

The average payables payment period shows considerable variability. It started at 96 days in early 2021, dropped to a low of 71 days by September 2022, and then rose again to 95 days by June 2025. This indicates alternating patterns in the timing of payments to suppliers, possibly reflecting shifts in cash management strategies or vendor negotiations.

Cash Conversion Cycle

The cash conversion cycle displays notable fluctuations throughout the periods. After an initial decrease from 121 days to 93 days by December 2022, it climbed steadily to reach 138 days in mid-2024, then decreased sharply to 107 days by December 2024, and finally rose again to 135 days by June 2025. These variations indicate changing operational efficiency and working capital management, influenced by the combined effects of inventory processing, receivables collection, and payables payment periods.