Domain: Accounting
Question:
In 2024, Unilever generated €12,144 million in operating cash flow, despite working capital changes reduced cash by €160 million. Why can a company still report strong operating cash flow even if working capital changes are negative, and how can analyzing the cash conversion cycle help explain whether this is a short-term timing issue or a longer-term efficiency problem?

Expected points in a correct answer:
State the operating cash flow bridge is sourced from the "Cash Flow" sheet.
Extract "Cash flow from operating activities" for 2024 = 12144 (€ million).
Extract "Changes in working capital" for 2024 = -160 (€ million).
Reconcile "Cash flow from operating activities" 2024 = 12144 as: 9400 + 1757 + (-160) + (-88) + 330 + 436 + 324 + 145.
Extract "Operating profit" for 2024 = 9400 (€ million) from the Cash Flow sheet operating cash bridge.
Reconcile "Changes in working capital" for 2024 = -160 as: -198 + (-206) + 244.
Extract "Depreciation, amortization and impairment" for 2024 = 1757 (€ million).
Extract Cost of sales for 2024 = 33391 (€ million absolute value) from the "Note 3" sheet.
Extract Revenue (Turnover) for 2024 = 60761 (€ million) from the "Note 3" sheet.
Extract "Trade payables and other liabilities" component within working capital for 2024 = 244 (€ million).
Extract "Inventories" balance sheet 2023 = 5119 (€ million) from the "Balance sheet" sheet.
Extract "Trade and other current receivables" balance sheet 2023 = 5775 (€ million).
Extract "Trade payables and other current liabilities" balance sheet 2024 = 16690 (€ million).
Extract "Inventories" balance sheet 2024 = 5177 (€ million) from the "Balance sheet" sheet.
Reconcile 2024 net operating cash flow = 9519 as: 12144 + (-2625).
Extract "Inventories" component within working capital for 2024 = -198 (€ million).
Extract "Trade and other receivables" component within working capital for 2024 = -206 (€ million).
Calculate DPO for 2024 ? 183.4 days as (16773.5 / 33391) × 365.
Calculate DSO for 2024 ? 35.4 days as (5893 / 60761) × 365.
Extract "Trade payables and other current liabilities" balance sheet 2023 = 16857 (€ million).
Calculate DIO for 2024 ? 56.3 days as (5148 / 33391) × 365.
Calculate CCC for 2024 ? -91.7 days as 56.3 + 35.4 ? 183.4.
Extract "Trade and other current receivables" balance sheet 2024 = 6011 (€ million).
Extract "Elimination of losses/(profits) on disposals" for 2024 = 436 (€ million).
Extract "Provisions less payments" for 2024 = 330 (€ million).
Extract "Pensions and similar obligations less payments" for 2024 = -88 (€ million).
Calculate Average inventories for 2024 = 5148 (€ million) as (5177 + 5119) / 2.
Extract "Income tax paid" for 2024 = -2625 (€ million).
Extract "Net cash flow from operating activities" for 2024 = 9519 (€ million).
Calculate Average receivables for 2024 = 5893 (€ million) as (6011 + 5775) / 2.
Calculate Average payables for 2024 = 16773.5 (€ million) as (16690 + 16857) / 2.
Extract "Non-cash charge for share-based compensation" for 2024 = 324 (€ million).
Extract "Other adjustments" for 2024 = 145 (€ million).
Conclude that strong operating cash flow (12144) is supported by core profitability and non-cash addbacks (e.g., depreciation 1757, disposal elimination 436, SBC 324) which outweigh the working-capital drag (-160), and CCC analysis (? -91.7) helps assess sustainability.
State that operating cash flow can remain strong when non-cash addbacks (e.g., depreciation 1757 and disposal elimination 436) outweigh the working-capital drag (-160).
State that a negative working capital change of -160 reduces operating cash flow relative to a no-working-capital-change scenario.
Explain that inventories (-198) were cash outflows
Explain that payables (+244) were a cash inflow
Explain that receivables (-206) were cash outflows
State that a negative CCC (? -91.7 days) indicates payables financing exceeds the time tied up in inventory and receivables, which can support strong operating cash flow even with negative WC changes.
Explain that inventories (-198), receivables (-206) and payables (+244) netted to (-190-206+244) -160.
State that the working-capital cash flow line items (inventories -198, receivables -206, payables +244) can be mapped to CCC components (DIO/DSO/DPO) for diagnosing timing vs efficiency.
Explain that negative working capital change of -160 can be short-term timing if driven by temporary inventory build (-198) or one-off receivables timing (-206), and CCC provides context on whether the cash cycle remains structurally favorable (CCC ? -91.7).
State that share-based compensation (324) increases operating cash flow because it is expensed but not immediately paid in cash.
State that provisions timing (330) can boost operating cash flow even when working capital is negative.
State CCC formula: CCC = DIO + DSO ? DPO.
State that the prompt's "operating cash flow" of 12144 corresponds to "Cash flow from operating activities" (pre-tax paid) rather than "Net cash flow from operating activities" (9519).
State DIO formula: DIO = (Average inventories / Cost of sales) × 365.
State DSO formula: DSO = (Average trade and other current receivables / Revenue) × 365.
State DPO formula: DPO = (Average trade payables and other current liabilities / Cost of sales) × 365.
State the cash conversion cycle (CCC) is analyzed using working-capital balance sheet accounts
State the cash conversion cycle (CCC) is analyzed using revenue/COGS from the income statement.
Explain that CCC analysis helps distinguish short-term timing vs longer-term efficiency by comparing changes in DIO, DSO, and DPO over time; if only one period is available, state the limitation explicitly.