Merck & Co. Inc. (NYSE:MRK)

Inventory Turnover

The inventory turnover ratio experienced fluctuations over the observed period. It began at 2.45 in 2020, slightly declined to 2.29 in 2021, reached a peak of 2.95 in 2022, before decreasing again to 2.54 in 2023 and further to 2.49 in 2024. This indicates some variability in how efficiently inventory is managed, with the highest efficiency noted in 2022.

Receivables Turnover

This ratio showed a dip from 6.11 in 2020 to 5.28 in 2021, then recovered to 6.27 in 2022. It slightly decreased to 5.81 in 2023, followed by a rise to 6.24 in 2024. These variations suggest fluctuations in the company's effectiveness in collecting receivables, with generally strong performance in the latter years.

Payables Turnover

Payables turnover decreased from 3.37 in 2020 to 2.96 in 2021, then significantly increased to 4.08 in 2022 and stabilized around 4.11 in 2023 before declining to 3.72 in 2024. This pattern indicates changes in payment practices to suppliers, with a notable acceleration in 2022 and 2023 followed by a slight slowdown.

Working Capital Turnover

A pronounced decline was observed from 109.83 in 2020 to 7.62 in 2021, continuing downward to 5.16 in 2022. A rebound to 9.29 occurred in 2023, followed by another decline to 6.19 in 2024. The sharp drop starting in 2021 suggests a significant change in either sales or working capital management, with ongoing volatility in later periods.

Average Inventory Processing Period

The number of days to process inventory increased from 149 days in 2020 to 159 days in 2021, then decreased noticeably to 124 days in 2022. It rose again to 144 days in 2023 and slightly increased further to 147 days in 2024. This cyclical pattern implies variability in inventory turnover speed, with the shortest period in 2022.

Average Receivable Collection Period

The collection period lengthened from 60 days in 2020 to 69 days in 2021, then shortened to 58 days in 2022. It rose again to 63 days in 2023 and returned to 58 days in 2024. The data indicate an oscillating trend in how quickly the company collects payments from customers.

Operating Cycle

The operating cycle extended from 209 days in 2020 to 228 days in 2021, then shortened significantly to 182 days in 2022. It increased to 207 days in 2023 and remained relatively stable at 205 days in 2024. These fluctuations reflect changes in combined inventory and receivable management efficiency over the years.

Average Payables Payment Period

The payment period to suppliers grew from 108 days in 2020 to 123 days in 2021, then shortened sharply to 89 days in 2022 and stabilized around that value in 2023. There was a slight increase to 98 days in 2024. This suggests variations in payment policy, with the company taking longer to pay in early years and then accelerating payments before slightly extending them again.

Cash Conversion Cycle

The cash conversion cycle, indicating net time to convert inputs into cash, increased from 101 days in 2020 to 105 days in 2021, then decreased to 93 days in 2022. It rose considerably to 118 days in 2023 and then moderately declined to 107 days in 2024. Overall, despite some improvement in 2022, the longer cycle in recent years could suggest reduced liquidity efficiency.

Cost of Sales

The cost of sales exhibited a fluctuating trend over the five-year period. It decreased from $15,485 million in 2020 to $13,626 million in 2021, indicating a reduction in production or procurement expenses during that year. However, this was followed by a sharp increase to $17,411 million in 2022, the highest within the period. Subsequently, costs decreased again in 2023 to $16,126 million, continuing the downward movement in 2024 to $15,193 million. Overall, the cost of sales shows variability with a peak in 2022, suggesting possible volatility in supply chain costs or production volumes.

Inventories

The inventory levels remained relatively stable, with minor fluctuations over the five years. Beginning at $6,310 million in 2020, inventories slightly decreased to $5,953 million in 2021 and further to $5,911 million in 2022. A recovery to $6,358 million occurred in 2023, followed by a modest decline to $6,109 million in 2024. This pattern indicates controlled inventory management without significant buildup or reduction, maintaining a consistent inventory base.

Inventory Turnover

Inventory turnover ratios fluctuated within a narrow range, reflecting changes in inventory efficiency. The ratio decreased from 2.45 in 2020 to 2.29 in 2021, implying slower inventory movement relative to cost of sales. This was followed by a notable increase to 2.95 in 2022, indicating improved turnover and possibly stronger sales or better inventory management. The ratio then declined to 2.54 in 2023 and slightly further to 2.49 in 2024. These movements suggest variable inventory management efficiency, with a peak performance in 2022 before moving back towards the initial levels.

Sales

The sales figures show a consistent upward trajectory over the five-year period. Starting at $47,994 million in 2020, sales increased modestly to $48,704 million in 2021. This was followed by a significant rise to $59,283 million in 2022. The upward trend continued with sales reaching $60,115 million in 2023, and further growing to $64,168 million by 2024. Overall, this indicates steady revenue growth, with particularly strong performance between 2021 and 2022.

Accounts Receivable, Net of Allowance for Doubtful Accounts

The net accounts receivable balances grew from $7,851 million in 2020 to $10,278 million in 2024. The largest year-over-year increase occurred between 2020 and 2021, rising by approximately $1,379 million. Growth in receivables continued through 2023, reaching $10,349 million, before slightly decreasing in 2024 to $10,278 million. This slight decline in the final year may reflect improved collection or changes in credit policy. Overall, accounts receivable expanded in line with sales growth, suggesting an increasing volume of credit extended to customers.

Receivables Turnover

The receivables turnover ratio experienced fluctuations during the period. It started at 6.11 in 2020, declining to 5.28 in 2021, which suggests slower collection efficiency during that year. The ratio improved markedly to 6.27 in 2022, indicating faster collection relative to receivables outstanding. A moderate drop to 5.81 was observed in 2023, followed by a recovery to 6.24 in 2024. These oscillations imply variability in collection practices or customer payment behavior, although the general trend shows a return to turnover levels similar to those at the beginning of the period.

Cost of Sales

The cost of sales exhibited notable fluctuations over the five-year period. Starting at $15,485 million in 2020, it declined to $13,626 million in 2021, followed by a significant increase to $17,411 million in 2022. Subsequently, it decreased to $16,126 million in 2023 and further to $15,193 million in 2024. This pattern suggests volatility in either production costs or sales volumes, with the peak value in 2022 indicating a possible period of increased operational activity or higher input costs.

Trade Accounts Payable

Trade accounts payable showed a generally downward trend from $4,594 million in 2020 to $3,922 million in 2023, but saw a slight increase to $4,079 million in 2024. The initial decline may reflect improved payment terms or reduced outstanding liabilities, while the uptick in the last year could indicate an increase in purchases on credit or delayed payments.

Payables Turnover Ratio

The payables turnover ratio, which measures how quickly the company pays off its suppliers, started at 3.37 in 2020, decreased to 2.96 in 2021, then rose sharply to 4.08 in 2022 and slightly increased to 4.11 in 2023 before falling to 3.72 in 2024. The increase in 2022 and 2023 implies faster payments to creditors during these years, possibly reflecting improved liquidity or supplier agreements. The decline in 2024 suggests a slight slowdown in payment speed, though it remains above the levels seen in 2020 and 2021.

Working Capital

Working capital shows a significant increase from 437 million US dollars in 2020 to 11,483 million US dollars in 2022. However, it declines notably to 6,474 million in 2023 before rising again to 10,362 million in 2024. This indicates an overall upward trend with some volatility in the intermediate years.

Sales

Sales exhibit a consistent upward trajectory throughout the period. Starting at 47,994 million US dollars in 2020, sales increase steadily each year, reaching 64,168 million in 2024. This reflects sustained growth in revenue over the five-year span.

Working Capital Turnover

Working capital turnover, calculated as the ratio of sales to working capital, declines sharply from 109.83 in 2020 to 5.16 in 2022. It then rises to 9.29 in 2023 before falling again to 6.19 in 2024. The initial sharp decline indicates that working capital grew at a faster pace than sales in the early years, reducing the efficiency of capital use, while the subsequent fluctuations suggest some variability in operational efficiency.

Overall Analysis

The data reveals a scenario of rapidly expanding working capital alongside steadily increasing sales. The disproportionate growth rates in the early years lead to a significant drop in working capital turnover, implying less efficient use of working capital relative to sales. Despite some recovery in turnover ratios later, the levels remain considerably lower than the initial year, highlighting ongoing challenges in optimizing working capital use in relation to sales growth.

The financial data reveals notable trends in inventory management over the five-year period. The inventory turnover ratio exhibits fluctuations rather than a consistent trajectory. Initially, there is a decline from 2.45 in 2020 to 2.29 in 2021, indicating a reduced rate of inventory cycling. Subsequently, the ratio rises sharply to 2.95 in 2022, suggesting a significant improvement in the efficiency of inventory usage within that year. However, this increase does not sustain, as the ratio declines again to 2.54 in 2023 and slightly further to 2.49 in 2024, indicating some easing of inventory turnover efficiency.*

Conversely, the average inventory processing period, measured in days, displays an inverse and somewhat corresponding pattern to the inventory turnover ratio. The number of days increases from 149 in 2020 to 159 in 2021, signaling slower inventory processing. This period then shortens considerably to 124 days in 2022, a sign of improved inventory management speed during that year. The processing period extends again in the subsequent years, reaching 144 days in 2023 and slightly increasing to 147 days in 2024, aligning with the trend of a decreasing turnover ratio in those years.*

Overall, the data suggests that inventory management experienced a peak of efficiency in 2022, as indicated by the highest turnover ratio and shortest processing period. Before and after this peak, the trends point to somewhat less efficient inventory handling. The slight deterioration in turnover and processing duration in the latter years may warrant attention to understand the operational or market factors influencing these changes.

Receivables Turnover Ratio

The receivables turnover ratio demonstrates fluctuations across the five-year period. It decreased from 6.11 in 2020 to 5.28 in 2021, indicating a slower collection of receivables. This was followed by an improvement in 2022, rising to 6.27, which suggests enhanced efficiency in collecting outstanding credit. The ratio declined again to 5.81 in 2023, before recovering to 6.24 in 2024, nearing the 2020 level. Overall, the pattern reflects variability but generally maintains a level around 6, implying periodic changes in credit management or sales terms.

Average Receivable Collection Period

The average receivable collection period inversely mirrors the turnover ratio trends. The collection period lengthened from 60 days in 2020 to 69 days in 2021, indicating slower cash inflows from receivables. It then shortened considerably to 58 days in 2022, which aligns with the increased turnover ratio for that year. In 2023, the collection period extended again to 63 days, before reducing back to 58 days in 2024. These changes demonstrate alternating effectiveness in receivables management, with the collection period typically oscillating between just under two months and slightly over two months.

Overall Insights

The fluctuations in both the receivables turnover ratio and the average collection period suggest periodic adjustments or challenges in credit policies, customer payment behavior, or operational efficiency. The company's ability to return to shorter collection periods and higher turnover ratios by 2024 indicates active efforts to optimize cash flow management. Maintaining a collection period near 58 days and a turnover ratio around 6 suggests a stable but moderately paced receivables cycle over the reported timeframe.

Average Inventory Processing Period

The average inventory processing period fluctuated over the five-year period. It increased from 149 days in 2020 to 159 days in 2021, before decreasing significantly to 124 days in 2022. Subsequently, it rose again to 144 days in 2023 and slightly increased to 147 days in 2024. This indicates some variability in inventory management efficiency, with the shortest processing time observed in 2022.

Average Receivable Collection Period

The average receivable collection period experienced minor fluctuations. It increased from 60 days in 2020 to 69 days in 2021, followed by a drop to 58 days in 2022. The period rose slightly to 63 days in 2023 and then returned to 58 days in 2024. Overall, the collection period remained relatively stable around the high 50s to high 60s range, suggesting consistent receivables management.

Operating Cycle

The operating cycle tended to mirror the combined dynamics of the inventory processing and receivable collection periods. It increased from 209 days in 2020 to 228 days in 2021, then sharply decreased to 182 days in 2022. This was followed by an increase to 207 days in 2023 and a slight decline to 205 days in 2024. The trend shows responsiveness to changes in working capital management, with the shortest operating cycle in 2022 indicating improved efficiency during that year.

Payables Turnover

The payables turnover ratio exhibited fluctuations over the analyzed periods. Starting at 3.37 in 2020, it decreased to 2.96 in 2021, indicating a slower rate of paying off suppliers. This was followed by a notable increase to 4.08 in 2022, suggesting a faster payment cycle. The ratio remained relatively stable in 2023 at 4.11, before slightly declining to 3.72 in 2024. Overall, the trend reflects variability in payment efficiency but an improvement from the 2021 low.

Average Payables Payment Period

The average duration to settle payables shows an inverse relationship to the payables turnover ratio. Initially, the payment period increased from 108 days in 2020 to 123 days in 2021, signaling slower payments. Subsequently, it decreased significantly to 89 days in both 2022 and 2023, indicating accelerated payments. In 2024, the payment period extended again to 98 days, although it remained below the 2020 and 2021 figures. This suggests a move toward more prompt payment practices after 2021, with some moderation in the latest year.

Overall Insights

From 2020 to 2024, the company's payables management reflects a dynamic pattern with a peak in extended payment periods in 2021, followed by a return to faster payment cycles in subsequent years. The improvements in payables turnover and reductions in payment days from 2022 to 2023 indicate enhanced operational efficiency in managing liabilities, although the slight reversal in 2024 may imply adjustments in payment policies or supplier terms.

Average Inventory Processing Period

The average inventory processing period exhibited variability over the five-year span. It increased from 149 days at the end of 2020 to a peak of 159 days in 2021, followed by a notable decline to 124 days in 2022. Subsequently, it rose again to 144 days in 2023 and slightly increased further to 147 days by the end of 2024. This pattern indicates fluctuations in inventory management efficiency, with some improvement observed in 2022, though the period remained relatively high overall.

Average Receivable Collection Period

The receivable collection period exhibited moderate fluctuations. It increased from 60 days in 2020 to 69 days in 2021, suggesting a slower collection of receivables during that year. The period improved to 58 days in 2022, indicating faster collections, but then slightly slowed to 63 days in 2023 and improved again to 58 days in 2024. Overall, the trend indicates some variability but an ability to maintain collection periods close to the initial 2020 level by 2024.

Average Payables Payment Period

The payables payment period showed considerable variation. Beginning at 108 days in 2020, it increased to 123 days in 2021, implying a longer period to settle payments. However, it dropped sharply to 89 days in 2022 and remained steady at 89 days in 2023, before increasing to 98 days in 2024. This suggests a deliberate strategy to optimize payment timing, with a significant reduction in payment days after 2021 but a slight extension in the most recent year.

Cash Conversion Cycle

The cash conversion cycle demonstrated fluctuation throughout the period. Starting at 101 days in 2020, it rose slightly to 105 days in 2021, decreased to 93 days in 2022, then increased markedly to 118 days in 2023, before declining again to 107 days in 2024. These changes reflect the combined effects of inventory, receivables, and payables management, with the longest cash conversion cycle occurring in 2023, indicating greater capital tied up in operations during that year, followed by some improvement in 2024.