After several years of turning over inventory more quickly, U.S. retailers are experiencing slower-moving stock, according to preliminary data from Sageworks, a financial information company.
The trend, combined with receivables that are aging at a slightly faster rate than are payables, paints a picture of retailers’ cash being tied up about 12 percent longer than it was two years ago, Sageworks’ financial statement analysis shows.
Privately held retailers, on average, in 2014 had a cash conversion cycle (CCC) of nearly 87 days, up from 79 days in 2013 and 77 in 2012. The cash conversion cycle indicates how many days funds are tied up in the process of obtaining inventory (or producing it, if the company is a manufacturer), selling it and receiving cash from customers for the sales.
“This data is incomplete at the moment, but it’s always better if this cycle is shorter, so this probably is not the best trend right now,” said Sageworks analyst James Noe. “When the number is smaller, it just means retailers are selling things at a faster pace, are receiving payments from customers at a faster pace and are taking longer to pay their own vendors, which is good because then the retailers can utilize that cash longer.”
Noe said that there’s no indication that the longer cash conversion cycle for retailers has crimped either sales or profitability at this point. In fact, privately held retailers have continued to post annual sales growth, and profitability has improved, according to Sageworks’ data. And recent surveys of business owners have found fewer concerns about cash reserves than a year ago.
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