Advanced Micro Devices Inc. (NASDAQ:AMD)

An examination of short-term operating activity ratios reveals several notable trends over the five-year period. Generally, a decline in efficiency is observed across most metrics, particularly from 2022 through 2024, with some stabilization or slight improvement in the most recent year, 2025.

Inventory Management

Inventory turnover decreased consistently from 4.35 in 2021 to 2.21 in 2025, indicating a growing difficulty in converting inventory into sales. Correspondingly, the average inventory processing period lengthened from 84 days in 2021 to 165 days in 2025, suggesting inventory is being held for increasingly extended durations. This could be due to slowing sales, overstocking, or issues with inventory obsolescence.

Receivables Management

Receivables turnover exhibited a decreasing trend from 6.07 in 2021 to 4.16 in 2024, before a modest increase to 5.49 in 2025. The average receivable collection period increased from 60 days in 2021 to 88 days in 2024, then decreased to 67 days in 2025. This suggests a lengthening of the time required to collect payments from customers, potentially indicating deteriorating credit terms or collection efforts. The 2025 value suggests a possible improvement in collection efficiency.

Payables Management

Payables turnover fluctuated over the period. It decreased from 6.05 in 2021 to 4.40 in 2022, then increased to 5.97 in 2025. The average payables payment period increased from 60 days in 2021 to 83 days in 2022, then decreased to 61 days in 2025. This indicates some variability in the speed at which obligations to suppliers are settled. The trend towards shorter payment periods in the latest year could reflect improved cash flow management or negotiation of more favorable terms with suppliers.

Overall Operating Cycle & Cash Conversion Cycle

The operating cycle lengthened considerably, increasing from 144 days in 2021 to 248 days in 2024, before decreasing slightly to 232 days in 2025. The cash conversion cycle followed a similar pattern, rising from 84 days in 2021 to 179 days in 2024, and then decreasing to 171 days in 2025. These increases suggest a growing time gap between investing in inventory and collecting cash from sales. The slight decrease in both cycles in 2025 may indicate early signs of improved working capital management.

Working Capital Efficiency

Working capital turnover decreased from 3.78 in 2021 to 1.98 in 2025, indicating a declining ability to generate sales from each dollar invested in working capital. This aligns with the observed trends in inventory and receivables turnover, suggesting a less efficient use of working capital resources.

In summary, the period from 2021 to 2024 was characterized by a general deterioration in short-term operating activity ratios. While 2025 shows some signs of stabilization or modest improvement in certain areas, the overall trend suggests a need for attention to working capital management practices.

The analysis reveals a consistent decline in inventory turnover over the five-year period. Simultaneously, both cost of sales and inventories have generally increased, though not at the same rate, contributing to this trend.

Inventory Turnover Trend

The inventory turnover ratio decreased from 4.35 in 2021 to 2.21 in 2025. This indicates a lengthening of the average time it takes to sell inventory. The most significant decline occurred between 2022 and 2023, falling from 3.45 to 2.81, and continued, albeit at a slower pace, through 2025.

Cost of Sales

Cost of sales exhibited an increase from US$8,505 million in 2021 to US$17,487 million in 2025. While there was a slight decrease between 2022 and 2023 (US$12,998 million to US$12,220 million), the overall trend is upward, suggesting increased production or sales volume, or potentially higher input costs.

Inventory Levels

Inventories have risen substantially, increasing from US$1,955 million in 2021 to US$7,920 million in 2025. This increase is more pronounced in the later years of the period, with a significant jump between 2023 and 2024 (US$4,351 million to US$5,734 million) and continuing into 2025. The growth in inventory levels outpaces the growth in cost of sales, directly contributing to the declining inventory turnover.

The combined effect of rising inventory levels and increasing cost of sales, with inventory growing at a faster rate, suggests a potential slowdown in the efficiency of inventory management. Further investigation may be warranted to understand the reasons behind the increasing inventory and the declining turnover ratio, such as changes in product mix, supply chain disruptions, or shifts in demand.

The receivables turnover ratio exhibits fluctuations over the five-year period. Initially, the ratio decreased from 6.07 in 2021 to 5.72 in 2022, indicating a slightly slower collection of receivables relative to revenue. This downward trend continued through 2023, with the ratio falling to 5.25. A more pronounced decrease occurred in 2024, with the ratio reaching 4.16, suggesting a significant slowdown in the rate at which the company collects its receivables. However, the ratio experienced a partial recovery in 2025, increasing to 5.49.

Receivables Turnover Trend

The receivables turnover ratio generally declined from 2021 to 2024. This suggests an increasing period for collecting receivables, potentially due to changes in credit terms offered to customers, a shift in the customer base, or increased collection efforts. The slight increase in 2025 may indicate improved collection efficiency or a change in sales patterns.

Concurrent with the receivables turnover trend, accounts receivable, net, increased from US$2,706 million in 2021 to US$6,315 million in 2025. Net revenue also increased substantially over the same period, rising from US$16,434 million to US$34,639 million. While receivables increased in absolute terms, the initial decline in turnover suggests that revenue growth outpaced the growth in receivables for the first two years. However, the significant drop in turnover in 2024, despite continued revenue growth, indicates a more substantial lengthening of the collection cycle.

Relationship to Revenue

The observed changes in receivables turnover are closely linked to the company’s revenue performance. The initial revenue increase did not lead to a proportional increase in receivables, but the subsequent slowdown in turnover, particularly in 2024, warrants further investigation. It is important to assess whether the increase in outstanding receivables is impacting cash flow and potentially increasing the risk of bad debts.

The recovery in receivables turnover in 2025, while positive, requires continued monitoring to determine if it represents a sustainable trend or a temporary fluctuation. Further analysis should include a review of the company’s credit policies, aging of receivables, and collection procedures to understand the underlying drivers of these changes.

The accounts payable turnover ratio exhibits fluctuations over the five-year period. Initially, the ratio decreased before stabilizing and then increasing towards the end of the observed timeframe. This suggests evolving efficiency in managing supplier credit and payments.

Payables Turnover Trend

The payables turnover ratio decreased from 6.05 in 2021 to 4.40 in 2022, indicating a lengthening of the time it takes to pay suppliers. This could be due to increased bargaining power with suppliers, a deliberate strategy to manage cash flow, or potentially, a developing issue with payment processing. The ratio then experienced a moderate increase to 5.05 in 2023 and further to 5.30 in 2024, suggesting a return towards more efficient payment practices. The most recent year, 2025, shows a further increase to 5.97, approaching the level observed in 2021.

Relationship to Cost of Sales

Cost of sales increased significantly from 2021 to 2022, and continued to grow throughout the period, reaching 17,487 in 2025. Accounts payable also increased from 2021 to 2022, but remained relatively stable between 2022 and 2024 before increasing in 2025. The initial decrease in the payables turnover ratio in 2022 coincided with the largest increase in cost of sales, potentially indicating that the company took longer to pay suppliers as sales volume and associated costs rose. The subsequent increases in the ratio, alongside continued growth in cost of sales, suggest improved management of payables as the business scaled.

Overall, the payables turnover ratio demonstrates a dynamic relationship with cost of sales. While an initial slowdown in payment speed was observed, the trend indicates a strengthening of accounts payable management in more recent years, aligning with the company’s growth trajectory.

The working capital turnover ratio demonstrates a consistent decline over the five-year period. While working capital and net revenue both increased in absolute terms, the efficiency with which working capital is utilized to generate revenue has decreased.

Working Capital

Working capital experienced substantial growth, increasing from US$4,343 million in 2021 to US$17,492 million in 2025. This indicates a growing capacity to fund short-term operations.

Net Revenue

Net revenue also increased over the period, rising from US$16,434 million in 2021 to US$34,639 million in 2025. However, the rate of revenue growth did not consistently outpace the growth in working capital.

Working Capital Turnover

The working capital turnover ratio decreased from 3.78 in 2021 to 1.98 in 2025. This suggests that the company is becoming less efficient in utilizing its working capital to generate sales. The most significant decline occurred between 2021 and 2022, dropping to 2.73. The rate of decline slowed between 2022 and 2023, and remained relatively stable between 2023 and 2025.

The observed trend suggests a potential need to evaluate the effectiveness of working capital management practices. Further investigation may be warranted to determine the underlying causes of the decreasing turnover ratio, such as increases in inventory levels, slower collection of receivables, or changes in payment terms to suppliers.

An examination of the provided financial information reveals a consistent trend in inventory management metrics over the five-year period. Specifically, the inventory turnover ratio demonstrates a declining pattern, while the average inventory processing period exhibits a corresponding increase.

Inventory Turnover

The inventory turnover ratio decreased from 4.35 in 2021 to 2.21 in 2025. This represents a substantial reduction in the rate at which inventory is sold and replenished. The most significant decline occurred between 2022 and 2023, falling from 3.45 to 2.81, and continued at a slower pace through 2025.

Average Inventory Processing Period

Concurrently, the average inventory processing period lengthened from 84 days in 2021 to 165 days in 2025. This indicates that inventory is taking progressively longer to be converted into sales. Similar to the inventory turnover ratio, the most pronounced increase in the processing period was observed between 2022 and 2023, rising from 106 to 130 days. The rate of increase slowed in subsequent years, but the overall trend remained upward.

The observed trends suggest a potential slowdown in sales relative to inventory levels. This could be attributable to various factors, including shifts in demand, increased inventory holding costs, or inefficiencies in the supply chain. Further investigation would be required to determine the underlying causes and assess the implications for operational efficiency and profitability.

The average receivable collection period exhibited fluctuations over the five-year period. Initially, the period increased before decreasing again in the most recent year observed.

Average Receivable Collection Period

In 2021, the average receivable collection period was 60 days. This figure increased to 64 days in 2022, and continued to rise to 70 days in 2023. A significant increase was observed in 2024, reaching 88 days. However, the period decreased substantially in 2025, falling to 67 days.

The observed trend suggests an initial lengthening of the time required to collect receivables, peaking in 2024. The subsequent decrease in 2025 indicates a potential improvement in collection efficiency or a change in credit terms. Further investigation would be needed to determine the underlying causes of these fluctuations.

Relationship to Receivables Turnover

The average receivable collection period is inversely related to the receivables turnover ratio. As the receivables turnover decreased from 6.07 in 2021 to 4.16 in 2024, the average collection period increased. The partial recovery in receivables turnover to 5.49 in 2025 corresponded with a decrease in the average collection period to 67 days, reinforcing this inverse relationship.

The increase in the collection period from 2021 to 2024 warrants attention, as a prolonged collection period can tie up working capital and potentially increase the risk of bad debts. The improvement in 2025 is a positive sign, but continued monitoring is recommended to ensure this trend persists.

The operating cycle has demonstrated a clear lengthening trend over the observed period. Each component contributing to the cycle – average inventory processing period and average receivable collection period – has generally increased, contributing to the overall extension of the time required to convert raw materials into cash from sales.

Average Inventory Processing Period

The average inventory processing period has consistently increased from 84 days in 2021 to 165 days in 2025. This represents an approximate 97% increase over the five-year period. The rate of increase accelerated between 2022 and 2024, suggesting potential inefficiencies in inventory management or a shift towards holding larger inventories. The increase slowed slightly in 2025, but remained elevated.

Average Receivable Collection Period

The average receivable collection period also exhibited an increasing trend, rising from 60 days in 2021 to 88 days in 2024. This indicates a lengthening of the time it takes to collect payments from customers. However, a decrease to 67 days was observed in 2025, potentially due to improved collection efforts or a change in customer payment terms. Despite this decrease, the 2025 value remains higher than the initial value in 2021.

Operating Cycle

As a result of the trends in its components, the operating cycle lengthened from 144 days in 2021 to a peak of 248 days in 2024. This signifies that it took progressively longer to complete the full cycle of purchasing inventory, selling it, and collecting cash. A slight contraction to 232 days occurred in 2025, driven by the decrease in the receivable collection period, but the cycle remains substantially longer than it was at the beginning of the period. The overall trend suggests a potential need to review and optimize both inventory management and credit/collection policies.

The combined effect of increasing inventory processing and receivable collection periods has resulted in a significant extension of the operating cycle. While the 2025 figures show a slight moderation in the lengthening trend, the overall pattern indicates a potential area of concern requiring further investigation.

The average payables payment period exhibited fluctuations over the five-year period. Initially, the period increased before stabilizing and then decreasing slightly. The payables turnover ratio, conversely, demonstrated an inverse relationship, declining initially and then trending upwards.

Average Payables Payment Period

The average payables payment period increased from 60 days in 2021 to 83 days in 2022, representing a 38.33% increase. This suggests a lengthening in the time taken to settle obligations to suppliers. Following this peak, the period decreased to 72 days in 2023, then to 69 days in 2024, and further to 61 days in 2025. This indicates a return towards the 2021 level, suggesting improved efficiency in managing payments to suppliers or a change in supplier terms. The overall trend from 2022 to 2025 shows a reduction of 26.51% in the average payment period.

Payables Turnover

Payables turnover decreased from 6.05 in 2021 to 4.40 in 2022, indicating a slower rate at which the company paid off its suppliers. This aligns with the observed increase in the average payables payment period. Subsequently, payables turnover increased to 5.05 in 2023, 5.30 in 2024, and reached 5.97 in 2025. This upward trend suggests the company began to pay its suppliers more frequently, consistent with the decreasing average payables payment period. The increase from 2022 to 2025 represents a 35.68% rise in payables turnover.

Relationship between Ratios

The observed inverse relationship between the average payables payment period and payables turnover is expected. A longer payment period generally results in a lower payables turnover, and vice versa. The period 2022-2025 demonstrates a return to a more efficient payment cycle, as evidenced by the decreasing payment period and increasing turnover ratio.

An examination of short-term operating activity reveals notable shifts in key metrics over the five-year period. The average inventory processing period, average receivable collection period, average payables payment period, and the resulting cash conversion cycle all demonstrate distinct trends, indicating evolving efficiency in working capital management.

Average Inventory Processing Period

The average inventory processing period exhibits a consistent upward trend, increasing from 84 days in 2021 to 165 days in 2025. This suggests a lengthening of the time required to convert raw materials into finished goods and ultimately sell them. The most significant increase occurred between 2022 and 2023, and again between 2023 and 2024, with a more moderate increase in the final year. This prolonged processing period could indicate inefficiencies in inventory management, potential obsolescence risks, or a shift in product mix towards items with longer production cycles.

Average Receivable Collection Period

The average receivable collection period initially increased from 60 days in 2021 to 88 days in 2024, indicating a lengthening of the time to collect payments from customers. However, a decrease to 67 days is observed in 2025. The increase between 2021 and 2024 could be attributed to changes in credit policies, customer payment behavior, or a higher proportion of sales on credit. The subsequent decrease in 2025 suggests a potential tightening of credit terms or improved collection efforts.

Average Payables Payment Period

The average payables payment period fluctuated over the period. It increased from 60 days in 2021 to 83 days in 2022, then decreased to 72 days in 2023, further decreasing to 69 days in 2024, and finally to 61 days in 2025. This suggests a dynamic relationship with suppliers, potentially influenced by negotiation strategies, supplier credit terms, or the company’s cash flow position. The overall trend indicates a slight shortening of the payment period over the five years.

Cash Conversion Cycle

The cash conversion cycle demonstrates a significant increase from 84 days in 2021 to 179 days in 2024, before decreasing slightly to 171 days in 2025. This increase is primarily driven by the lengthening inventory processing period, partially offset by changes in the receivable and payable periods. A longer cash conversion cycle generally implies that the company is tying up more capital in its operations for extended periods, potentially impacting liquidity. The slight decrease in 2025 offers a limited indication of potential improvement, but the cycle remains substantially longer than in 2021.

In summary, the observed trends suggest a growing inefficiency in converting investments in inventory and receivables into cash. While the payables period demonstrates some flexibility, it has not been sufficient to offset the increases in the inventory and receivable cycles. Continued monitoring of these ratios is recommended to assess the sustainability of these trends and their potential impact on the company’s financial health.