Johnson & Johnson vs Merck O2C Performance
51% shorter CCC, 4 days lower DSO, 33 days lower DPO & more!
Hello, FINsiders! 👋🏻 In this article, we’ll compare two global pharma giants Johnson & Johnson and Merck as we compare their account receivables metrics.
51% shorter CCC for J&J
4 days lower DSO for Merck
33 days lower DPO for Merck
10 days lower DIO for J&J
Despite longer payment and collection times, how does Johnson & Johnson beat Merck in cash efficiency?
Let's find out! 🔍
Johnson & Johnson's CCC beats Merck's by 51% 🥊
From 2019-23, Johnson & Johnson consistently had a lower Cash Conversion Cycle (CCC) than Merck.
In 2019, J&J's CCC was 84 days, far below Merck's 197 days, highlighting J&J's superior capital efficiency.
Over the years, J&J consistently outperformed Merck, with CCC ranging from 54 to 88 days, versus Merck's 120 to 197 days.
The largest gap occurred in 2019, with J&J's CCC 113 days lower than Merck's. Despite narrowing in later years, J&J maintained a consistent lead.
Now, let’s delve into the Days Sales Outstanding (DSO), Days Payable Outstanding (DPO), and Days Inventory Outstanding (DIO)—to understand better what drove these CCC scores.
Merck's DSO is 4 days lower 📉
Comparing the Days Sales Outstanding (DSO) for Johnson & Johnson (J&J) and Merck over the last five years, we observe interesting trends.
J&J has shown a fluctuation in DSO, ranging from 62 days in 2020 to 67 days in 2022, with an average of 64 days.
In 2020, J&J's DSO was 62 days, influenced by its COVID-19 vaccine development, showcasing external factors' impact on financial metrics.
Merck's DSO ranged from 57 in 2023 to 65 days in 2019, averaging 60 days, indicating a consistent improvement in its collection efficiency.
Johnson & Johnson's DPO is 33 days higher 💰
Johnson & Johnson’s average Days Payables Outstanding (DPO) was 134 days, ranging from 116 days in 2019 to 160 days in 2023. In contrast, Merck’s DPO averaged 105 days, between 93 in 2019 and 120 days in 2023.
This shows that Johnson & Johnson pays suppliers about a month (29 days on average) later than Merck.
💡 Why is Merck’s DPO lower than Johnson & Johnson’s? Learn here.
Johnson & Johnson's DIO is 10 days lower 📉
Comparing the Days Inventory Outstanding (DIO) for J&J and Merck over the last five years reveals interesting trends and insights:
J&J’s DIO averaged 138 days, ranging from 117 in 2019 to 154 days in 2021 while Merck’s DIO averaged 148 days, fluctuating between 124 in 2022 and 173 days in 2019.
Despite variations in individual years, J&J consistently maintained a lower DIO compared to Merck, with an average difference of 10 days.
This indicates that J&J managed its inventory more efficiently, holding inventory for a shorter duration compared to Merck.
💡 Why is Johnson & Johnson’s DIO lower than Merck’s? Learn here.
J&J Out-Cashed Merck in the Pharma Race 🏁
While both Johnson & Johnson and Merck have improved cash performance metrics, J&J consistently maintains a leaner financial approach with a lower average Cash Conversion Cycle.
With efficient cash flow and working capital management vital for innovation funding, J&J leads in financial agility.
Both companies must stay finely tuned to maintain their positions in the cash performance race.
Read the full story here.