Advanced Micro Devices Inc. (NASDAQ:AMD)

The financial data reveals notable shifts in the efficiency of asset management and cash flow cycles over the five-year period examined.

Inventory Turnover

The inventory turnover ratio declined steadily from 3.87 in 2020 to 2.28 in 2024, indicating that the frequency of inventory being sold and replaced decreased. Correspondingly, the average inventory processing period increased from 94 days to 160 days, showing that inventory is being held for longer durations.

Receivables Turnover

The receivables turnover ratio rose sharply from 4.73 in 2020 to a peak of 6.07 in 2021 but then gradually decreased to 4.16 by 2024. This trend corresponds with the average receivable collection period initially shortening from 77 to 60 days and then lengthening to 88 days, indicating a slowdown in collection efficiency toward the end of the period.

Payables Turnover

The payables turnover ratio decreased significantly from 11.57 in 2020 to 5.21 in 2022, before improving slightly to 6.56 by 2024. The average payables payment period expanded from 32 days in 2020 to 70 days in 2022, then shortened somewhat to 56 days in 2024. This suggests the company extended its payment terms or delayed payments in the middle years but began accelerating payments again in later years.

Working Capital Turnover

The working capital turnover ratio increased from 2.62 in 2020 to 3.78 in 2021 but then declined to 2.19 by 2024. This indicates that working capital became less efficient at generating sales after 2021.

Operating Cycle

The operating cycle lengthened considerably from 171 days in 2020 to 248 days in 2024, reflecting longer durations in inventory holding combined with longer receivable collection periods, which affects the cash tied up in operations.

Cash Conversion Cycle

The cash conversion cycle followed a similar pattern, decreasing sharply from 139 days in 2020 to 87 days in 2021, then increasing steadily to 192 days by 2024. This suggests that the company’s efficiency in converting resource inputs into cash deteriorated after initial improvement.

Overall, the data reflects a trend toward longer cash conversion and operating cycles, with decreasing turnover ratios for inventory and receivables, suggesting a decline in operational efficiency and liquidity management over the period. The extension of inventory holding and receivable collection periods coupled with fluctuating payables indicate challenges in managing working capital optimally in recent years.

The financial data reveals significant developments in key operational metrics over the five-year period.

Cost of Sales

The cost of sales increased substantially from US$5,416 million in 2020 to US$13,060 million in 2024. This represents more than a twofold increase, reflecting either growing production volume, higher input costs, or both. Although there was a slight dip between 2022 (US$12,998 million) and 2023 (US$12,220 million), the overall trend remains strongly upward.

Inventories

Inventories also show a marked upward trend, rising from US$1,399 million in 2020 to US$5,734 million in 2024. This rapid growth in stock levels, especially from 2022 onward, suggests increased accumulation of inventory, which may be linked to supply chain strategies or anticipated future demand.

Inventory Turnover Ratio

The inventory turnover ratio has experienced a consistent decline over the period, moving from 3.87 in 2020 down to 2.28 in 2024. This decrease indicates that inventory is being converted to sales less frequently, implying slower inventory movement or increased stockpiling. The trend aligns with the rising inventory values and reflects potential inefficiencies in inventory management or changes in sales velocity.

In summary, while the company’s cost of sales nearly doubled, inventory levels expanded at an even faster rate, resulting in a declining inventory turnover ratio. This combination may warrant closer monitoring, as it could affect working capital efficiency and operational liquidity.

The financial data indicates a dynamic progression across the reviewed periods, particularly regarding net revenue, accounts receivable, and receivables turnover.

Net Revenue

There is a clear positive trend in net revenue, with values increasing from 9,763 million US dollars in 2020 to 25,785 million US dollars in 2024. This reflects a robust growth trajectory with noticeable increments each year, except a slight decline observed in 2023 compared to 2022. Overall, the company has more than doubled its net revenue within the analyzed timeframe.

Accounts Receivable, Net

An upward trend is also observed in accounts receivable, net, which rose from 2,066 million US dollars in 2020 to 6,192 million US dollars in 2024. This growth suggests an increasing volume of credit sales or extension of payment terms. The rise is steady each year, with some acceleration in 2024, where the increase is relatively larger than in previous years.

Receivables Turnover Ratio

The receivables turnover ratio demonstrates a decreasing pattern across the periods, starting at 4.73 in 2020 and decreasing to 4.16 by 2024. This decline indicates a slowing in the rate at which receivables are collected, signaling potential lengthening of the collection period or changes in credit policies. Notably, after peaking in 2021 at 6.07, the ratio consistently declined each subsequent year.

In summary, while net revenue has shown significant growth, the corresponding increase in accounts receivable and declining turnover ratio suggest increasing credit exposure and a slowdown in receivables collection efficiency. This trend highlights a potential area for cash flow management focus despite the revenue expansion.

Cost of Sales

The cost of sales exhibited a consistent upward trend over the five-year period. Starting at $5,416 million in 2020, it increased sharply to $8,505 million in 2021 and continued to rise to $12,998 million in 2022. Although there was a slight decline to $12,220 million in 2023, the figure rose again to $13,060 million in 2024. Overall, this indicates expanding production or sales volume, with a minor fluctuation in 2023.

Accounts Payable

Accounts payable showed significant growth from $468 million in 2020 to $1,321 million in 2021, and further to $2,493 million in 2022. Following this peak, there was a decline in 2023 to $2,055 million and a further slight decrease to $1,990 million in 2024. This pattern suggests increasing short-term liabilities up to 2022, followed by a reduction which may reflect improved payment management or changes in purchasing practices.

Payables Turnover Ratio

The payables turnover ratio decreased markedly from 11.57 in 2020 to 6.44 in 2021, and then to 5.21 in 2022, indicating that the company took longer to pay its suppliers in these years. However, the ratio improved somewhat in the subsequent years, rising to 5.95 in 2023 and further to 6.56 in 2024. This improvement suggests an increased efficiency in paying off payables after the dip witnessed in 2021 and 2022, though the ratio remained below the 2020 level.

The financial data reveals a steady and notable increase in working capital over the five-year period. Starting at $3,726 million at the end of 2020, working capital grew consistently each year, reaching $11,768 million by the end of 2024. This upward trend indicates a strengthening in the company’s short-term financial health and liquidity position.

Net revenue shows a significant upward trajectory as well. Beginning at $9,763 million in 2020, it climbed sharply to $16,434 million in 2021, then expanded further to $23,601 million in 2022. Although net revenue experienced a slight dip to $22,680 million in 2023, it rebounded and increased to $25,785 million in 2024. This pattern suggests strong revenue growth overall, despite a minor setback during 2023.

The working capital turnover ratio demonstrates a fluctuating trend throughout the period. It increased from 2.62 in 2020 to a peak of 3.78 in 2021, indicating more efficient use of working capital relative to revenue in that year. However, from 2022 onward, the ratio declined each year—falling to 2.73 in 2022, then to 2.25 in 2023, and further to 2.19 in 2024. This decline, despite rising revenues and working capital balances, implies that the company’s efficiency in utilizing working capital to generate sales has diminished somewhat in recent years.

Overall, the financial data suggests a company that has expanded both its liquidity and revenue base substantially over the five-year period. However, the decreasing working capital turnover ratio in the latter years may warrant further attention to operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio has exhibited a consistent decline over the observed period. Starting at 3.87 in 2020, it increased slightly to 4.35 in 2021 but then decreased steadily to 3.45 in 2022, 2.81 in 2023, and further down to 2.28 in 2024. This downward trend suggests a diminishing frequency of inventory being sold and replaced within the year.

Average Inventory Processing Period

The average inventory processing period has increased each year from 2020 through 2024. It began at 94 days in 2020 and shortened to 84 days in 2021, indicating quicker inventory turnover during that year. However, it then expanded to 106 days in 2022, further lengthened to 130 days in 2023, and reached 160 days in 2024. This indicates a growing duration for inventory to be processed on average, consistent with the decline in inventory turnover ratio.

Overall Analysis

The data shows an inverse relationship between inventory turnover and the average inventory processing period. The declining inventory turnover ratio coupled with an increasing processing period suggests a slowdown in inventory movement. This pattern could imply challenges such as reduced sales velocity, potential overstocking, or inefficiencies in inventory management. These trends may warrant further investigation to identify underlying causes and to optimize inventory handling.

Receivables Turnover

The receivables turnover ratio initially increased from 4.73 in 2020 to a peak of 6.07 in 2021, indicating an improvement in the efficiency of collecting receivables. After 2021, the ratio showed a declining trend, decreasing to 5.72 in 2022, 5.25 in 2023, and further down to 4.16 in 2024. This decline suggests that the company's ability to quickly convert accounts receivable into cash has weakened over the latter years.

Average Receivable Collection Period

The average collection period, measured in days, inversely reflects the receivables turnover trend. It reduced from 77 days in 2020 to 60 days in 2021, reflecting faster collection of receivables and better working capital management. However, from 2021 onwards, the collection period increased consecutively to 64 days in 2022, 70 days in 2023, and reached 88 days by 2024. This indicates that on average, the company takes longer to collect its receivables, which may impact liquidity and cash flow.

Overall Insights

The analysis reveals an initial improvement in receivables management efficiency through 2021, followed by a consistent decline in turnover and a rise in the collection period over the next three years. The extended collection period and reduced turnover ratio in the recent years could signal emerging collection challenges, potential credit risk increase, or changes in customer payment behavior. Monitoring these trends will be important for assessing the company’s working capital and operational cash flow health going forward.

The analysis of the recent annual financial data reveals notable trends in the management of working capital components over the observed periods.

Average Inventory Processing Period

This metric shows an increasing trend, starting from 94 days at the end of 2020 and rising progressively each year to reach 160 days by the end of 2024. The initial decrease from 94 days in 2020 to 84 days in 2021 suggests an improvement in inventory turnover during that time. However, from 2021 onwards, the period lengthens consistently, indicating a slower inventory processing pace, which may point to accumulation of stock or challenges in inventory management efficiency.

Average Receivable Collection Period

The receivable collection period exhibits a fluctuating but generally increasing pattern. The period declines significantly from 77 days in 2020 to 60 days in 2021, implying faster collection during that year. Thereafter, it increases gradually: 64 days in 2022, 70 days in 2023, and a more pronounced rise to 88 days in 2024. This suggests that the company is taking longer to collect payments from customers over time, potentially impacting cash flow.

Operating Cycle

The operating cycle, which combines inventory processing and receivable collection periods, mirrors the upward trends observed in its components. Initially, it decreases from 171 days in 2020 to 144 days in 2021, reflecting improved operational efficiency during that period. Subsequently, it increases each year, reaching 248 days by the end of 2024. This lengthening indicates that the company’s cash is tied up for longer periods during the business cycle, signifying a decrease in overall working capital efficiency.

Overall, the data reveals a shift from more efficient inventory and receivable management in 2021 towards a progressive elongation of these periods up to 2024. This may suggest emerging challenges in converting inventory into sales and receivables into cash, which could affect liquidity and operational flexibility if the trends continue.

Payables Turnover

The payables turnover ratio shows a noticeable decline from 11.57 in 2020 to 5.21 in 2022, followed by a slight recovery to 6.56 in 2024. This downward trend indicates the company took longer to pay its suppliers over the initial years, with some improvement starting in 2023. The overall reduction in turnover suggests a lengthening of the payment cycle or changes in payment practices during this period.

Average Payables Payment Period

The average payables payment period, expressed in days, increased significantly from 32 days in 2020 to a peak of 70 days in 2022. This increase corresponds with the decreased payables turnover ratio, confirming a longer duration to settle payables. Subsequently, this period shortened to 56 days by 2024, indicating an effort to reduce payment delays. Despite this improvement, the company still takes considerably longer to pay suppliers in 2024 compared to 2020.

Overall Analysis

The financial metrics analyzed reveal a trend toward extended payment periods during 2021 and 2022, likely impacting supplier relations and cash management. The partial reversal starting in 2023 suggests an adjustment in payment policies or an improvement in liquidity. Nevertheless, the payables turnover and payment period in 2024 remain less favorable than the levels seen in 2020, highlighting room for further optimization in managing outstanding payables.

Average Inventory Processing Period

The average inventory processing period shows a generally increasing trend over the observed years. It decreased from 94 days in 2020 to 84 days in 2021, indicating an improvement in inventory management or turnover. However, from 2021 onward, it increased significantly, reaching 106 days in 2022, 130 days in 2023, and further to 160 days in 2024. This suggests a progressively slower inventory turnover, potentially indicating growing challenges in inventory management or changes in sales patterns.

Average Receivable Collection Period

The average receivable collection period decreased from 77 days in 2020 to 60 days in 2021, signaling improved efficiency in collecting receivables. From 2021 to 2024, there is a moderate but consistent increase: 64 days in 2022, 70 days in 2023, and 88 days in 2024. This indicates a gradual decline in collection efficiency, as the company is taking longer to collect payments from customers in recent years.

Average Payables Payment Period

The average payables payment period increased significantly from 32 days in 2020 to 57 days in 2021 and then to 70 days in 2022, suggesting that the company extended its payment terms to suppliers or delayed payments. In the following years, this period decreased to 61 days in 2023 and then to 56 days in 2024, indicating a trend toward quicker payments compared to the peak in 2022 but still remaining well above the 2020 level.

Cash Conversion Cycle

The cash conversion cycle (CCC) exhibits notable fluctuations. It declined sharply from 139 days in 2020 to 87 days in 2021, reflecting improved overall working capital management in that period. However, from 2021 the CCC increased steadily, returning to the initial high level of 139 days in 2023 and rising further to 192 days in 2024. The prolongation of the CCC suggests that the company is taking longer to convert its investments in inventory and receivables into cash, negatively impacting liquidity and operational efficiency.