Amgen Inc. (NASDAQ:AMGN)

The analysis of financial efficiency and cash management reveals notable fluctuations over the observed five-year period.

Inventory Turnover and Processing Period

The inventory turnover ratio remained stable at 1.58 for the first two years but saw a decline to 1.3 in the third year, followed by a more significant drop to 0.89 in the fourth year, indicating slower inventory movement. However, it rebounded sharply to 1.84 in the fifth year, reflecting improved inventory management or increased sales. Correspondingly, the average inventory processing period increased significantly from 231 days to 411 days by the fourth year, indicating that inventory was held much longer, but then shortened drastically to 199 days in the final year, consistent with the rebound in turnover.

Receivables Turnover and Collection Period

Receivables turnover showed a declining trend from 5.36 down to 3.7 over four years, signifying slower collection of receivables, which may impact liquidity. This trend is mirrored by an increase in the average receivable collection period from 68 days to a peak of 99 days in the fourth year. In the last year, receivables turnover improved to 4.72, while the collection period shortened to 77 days, indicating enhanced efficiency in receivables management.

Payables Turnover and Payment Period

Payables turnover experienced fluctuations but overall increased from 4.33 to 6.74, suggesting faster settlement of payables. The corresponding average payables payment period decreased from 84 days at the start to 54 days at the end of the period, confirming quicker payments to suppliers in the most recent year.

Working Capital Turnover

Working capital turnover exhibited variations, increasing from 2.55 to 3.82 in the middle years before declining to 2.25, then sharply rising to 5.4 in the final year. This pattern indicates periods of both more efficient and less efficient use of working capital, with the peak performance at the end suggesting stronger operational efficiency.

Operating and Cash Conversion Cycles

The operating cycle extended from 299 days to a high of 510 days by the fourth year, indicating a much longer time to convert inventory and receivables into cash. This aligns with the increased inventory processing and receivable collection periods during this time. Nevertheless, in the fifth year, the operating cycle contracted significantly to 276 days. Similarly, the cash conversion cycle increased from 215 days to 441 days by the fourth year, reflecting a tighter cash flow period associated with slower collection and inventory turnover, before decreasing sharply to 222 days, indicating improved cash management.

The financial data exhibits notable fluctuations in cost of sales, inventories, and inventory turnover ratios over the analyzed periods.

Cost of Sales

The cost of sales increased moderately from US$6,159 million in 2020 to US$6,454 million in 2021, followed by a slight decline to US$6,406 million in 2022. However, it then experienced a substantial rise reaching US$8,451 million in 2023 and sharply climbing to US$12,858 million in 2024. This pattern indicates a significant acceleration in the company’s cost structure, particularly in the last two years, suggesting possible expansion or increased production costs.

Inventories

Inventories showed a steady upward trend initially, growing from US$3,893 million in 2020 to US$4,086 million in 2021, and further to US$4,930 million in 2022. Thereafter, inventories surged dramatically to US$9,518 million in 2023 before decreasing to US$6,998 million in 2024. This indicates a build-up of stock in 2023, potentially reflecting cautious inventory management or preparation for higher sales, followed by a partial drawdown the following year.

Inventory Turnover Ratio

The inventory turnover ratio remained stable at 1.58 in both 2020 and 2021 but declined to 1.3 in 2022. It further dropped significantly to 0.89 in 2023, aligning with the large increase in inventories during that year, suggesting slower inventory movement or accumulation of stock. The ratio rebounded sharply to 1.84 in 2024, denoting an improvement in inventory efficiency and faster sales or reduction in inventory levels relative to cost of sales.

Overall, the data reveals a period of stable operations till 2021, followed by pronounced changes in inventory management and cost of sales from 2022 onwards. The company experienced inventory accumulation in 2023, which was accompanied by a notable decrease in inventory turnover, before correcting these dynamics in 2024 with improved turnover and a significant increase in cost of sales. These patterns might signal operational adjustments in response to market conditions or strategic shifts in supply chain and production planning.

Product Sales

Product sales demonstrate a consistent upward trend over the five-year period. Starting at $24,240 million in 2020, sales increased marginally to $24,297 million in 2021, followed by a more noticeable rise to $24,801 million in 2022. The upward momentum accelerated significantly in subsequent years, reaching $26,910 million in 2023 and peaking at $32,026 million in 2024. This pattern indicates robust revenue growth, particularly in the last two years.

Trade Receivables, Net

Trade receivables net values have fluctuated but generally trended upward from $4,525 million in 2020 to a peak of $7,268 million in 2023, before declining slightly to $6,782 million in 2024. The substantial increase between 2021 and 2023 suggests higher credit extended to customers or slower collections during this period. The decrease in 2024 may indicate an improvement in collection efficiency or changes in sales terms.

Receivables Turnover

The receivables turnover ratio, which measures how efficiently the company collects its receivables, shows a downward trend from 5.36 in 2020 to 3.7 in 2023, followed by a partial recovery to 4.72 in 2024. The decline through 2023 aligns with the rising trade receivables, implying slower collection cycles or increased credit risk. The improvement in 2024 suggests an enhancement in credit management or collection practices.

Cost of Sales

The cost of sales exhibited a generally increasing trend over the five-year period. Starting from 6,159 million US dollars in 2020, it rose modestly to 6,454 million in 2021. A slight decline occurred in 2022, with cost of sales decreasing to 6,406 million. However, from 2022 onwards, there was a marked increase, reaching 8,451 million in 2023 and experiencing a substantial jump to 12,858 million in 2024. This pattern suggests rising production or operational costs, especially pronounced in the last two years.

Accounts Payable

Accounts payable showed minor fluctuations initially and then a gradual increase. The figure decreased from 1,421 million in 2020 to 1,366 million in 2021, followed by a rebound to 1,572 million in 2022. The upward trend continued with values of 1,590 million and 1,908 million in 2023 and 2024, respectively. This pattern indicates an increasing level of outstanding obligations to suppliers, potentially reflecting either purchases on credit or extended payment terms.

Payables Turnover Ratio

The payables turnover ratio demonstrated variation over the years, suggesting changes in how efficiently the company manages its payables. It rose from 4.33 in 2020 to 4.72 in 2021, indicating improved payment efficiency or faster turnover. In 2022, the ratio dropped to 4.08, signaling a slowdown in payables turnover. However, the ratio increased substantially thereafter, reaching 5.32 in 2023 and further climbing to 6.74 in 2024. The significant rise in 2023 and 2024 implies a notable acceleration in the payment cycle relative to purchases, which may be associated with stricter credit management or enhanced liquidity.

Working Capital

The working capital experienced a decline from 9,491 million USD in 2020 to 6,499 million USD in 2022, indicating a reduction in short-term liquidity over this period. There was a significant increase in 2023, rising sharply to 11,940 million USD, followed by a notable decrease to 5,931 million USD in 2024. This fluctuation suggests variability in the company's current assets minus current liabilities management or shifts in operational needs.

Product Sales

Product sales showed a generally increasing trend throughout the period, starting at 24,240 million USD in 2020 and rising to 32,026 million USD in 2024. The growth was steady, with minor fluctuations, reflecting an overall positive momentum in revenue generation from core operations.

Working Capital Turnover

The working capital turnover ratio varied considerably across the years analyzed. It increased from 2.55 in 2020 to a peak of 3.82 in 2022, indicating improved efficiency in using working capital to generate sales. However, this ratio dropped significantly to 2.25 in 2023 amid the large increase in working capital, before rising dramatically to 5.4 in 2024. The high turnover in 2024, despite the lower working capital, implies a strong efficiency or increased sales relative to working capital during that year.

Summary

In summary, the company demonstrated increasing sales over the period while experiencing notable fluctuations in working capital. The efficiency of working capital utilization, as indicated by the turnover ratio, showed improvement overall but was marked by volatility, particularly in 2023 and 2024. These trends suggest changes in capital management strategies and operational dynamics impacting liquidity and sales efficiency.

Inventory Turnover

The inventory turnover ratio remained stable at 1.58 for both 2020 and 2021 before declining to 1.3 in 2022. A more pronounced decrease occurred in 2023, dropping to 0.89, indicating a significant slowdown in inventory turnover during that year. However, the ratio rebounded sharply in 2024 to 1.84, surpassing previous years and suggesting improved efficiency in managing inventory.

Average Inventory Processing Period

The average inventory processing period was consistent at 231 days for 2020 and 2021. It then increased notably to 281 days in 2022, followed by a substantial rise to 411 days in 2023. This trend indicates that inventory was held for longer periods, reflecting slower movement or possible stock accumulation. In 2024, the processing period decreased significantly to 199 days, which aligns with the increased inventory turnover ratio seen in that year, suggesting enhanced inventory management and faster turnover.

Overall Trends and Insights

The data reveals a cyclical pattern in inventory management efficiency. From 2020 through 2021, inventory handling was stable with moderate turnover rates and consistent processing periods. The decline in turnover and elongation of inventory processing times in 2022 and especially 2023 may indicate challenges in sales, supply chain issues, or overstocking. The reversal of this pattern in 2024 points toward corrective actions or improved market conditions leading to better inventory turnover and shorter processing durations.

Receivables Turnover

The receivables turnover ratio has shown a declining trend from 5.36 in 2020 to a low of 3.7 in 2023, before increasing to 4.72 in 2024. This decrease over the first four periods suggests a slowing efficiency in collecting receivables, which was partially reversed in the final year under review.

Average Receivable Collection Period

The average receivable collection period exhibited an inverse trend relative to receivables turnover. It increased from 68 days in 2020 to a peak of 99 days in 2023, indicating that the company took progressively longer to collect its receivables during this period. In 2024, this period decreased to 77 days, consistent with the uptick in the receivables turnover ratio, reflecting improved collection efficiency in the most recent year.

Overall Analysis

There is a clear correlation between the receivables turnover ratio and the average collection period, as expected. The data indicates a deterioration in receivables management efficiency from 2020 to 2023, with the company collecting receivables more slowly and turning over receivables fewer times annually. However, improvements are evident in 2024, with both faster collection of receivables and a higher turnover ratio, suggesting enhanced cash flow management and potentially stronger credit controls or customer payment behaviors.

Inventory Management

The average inventory processing period exhibited variability over the observed years. Starting at 231 days in both 2020 and 2021, it increased substantially to 281 days in 2022 and peaked at 411 days in 2023, indicating a significant slowdown in inventory turnover during this period. However, a marked improvement occurred in 2024, with the period decreasing to 199 days, the lowest point in the series, suggesting enhanced inventory management efficiency.

Receivables Collection

The average receivable collection period showed a general upward trend from 2020 to 2023, increasing consecutively from 68 days in 2020 to 99 days in 2023. This trend indicates a lengthening of the time taken to collect receivables, which could potentially impact cash flow. Nonetheless, in 2024, this period declined to 77 days, reflecting an improvement in the collection process and possibly more effective credit control.

Operating Cycle

The operating cycle, a combination of inventory processing and receivables collection periods, mirrored the fluctuations observed in its components. It remained relatively stable around 299-305 days during 2020 and 2021, then grew notably to 363 days in 2022 and surged to 510 days in 2023, signaling a lengthening of the overall operating cycle. This elongation may indicate increased working capital requirements and efficiency challenges. In 2024, the operating cycle contracted sharply to 276 days, demonstrating a significant positive turnaround in working capital management.

General Insights

The data suggest that the company faced increasing operational inefficiencies from 2020 through 2023, as reflected by longer inventory processing and receivable collection periods, leading to a considerably extended operating cycle. The improvements observed in 2024 across all these metrics indicate successful initiatives to accelerate inventory turnover and receivables collection, thereby enhancing operational efficiency and potentially improving liquidity.

Payables Turnover

The payables turnover ratio exhibits notable fluctuations across the periods from 2020 to 2024. Starting at 4.33 in 2020, there is a moderate increase to 4.72 in 2021, followed by a decline to 4.08 in 2022. Subsequently, the ratio increases significantly in the next two years, reaching 5.32 in 2023 and peaking at 6.74 in 2024. This pattern suggests an improvement in the company's efficiency in settling its payables by 2024, indicating a faster payment cycle over time after some variance in earlier years.

Average Payables Payment Period

The average payables payment period, measured in days, shows an inverse trend compared to the payables turnover ratio, as expected. The period decreases from 84 days in 2020 to 77 days in 2021. However, it rises again to 90 days in 2022 before undergoing a significant reduction in 2023 and 2024, dropping to 69 days and then further to 54 days, respectively. This declining trend in recent years reflects a shortening timeframe for settling payables, indicating improved liquidity management or possibly tighter payment terms.

Overall Trends and Insights

The data reveal an overall improvement in the management of payables over the five-year span. Despite some variability in the middle years, the company has accelerated the payment cycle by 2024, as shown by the increasing payables turnover ratio and the decreasing average payment days. This could imply enhanced credit terms, stronger cash flow position, or a strategic decision to reduce payables duration. The sharp decrease in payment period in the latter years, coupled with increased payables turnover, suggests a more disciplined and efficient approach to managing liabilities.

Average Inventory Processing Period

The average inventory processing period exhibited notable fluctuation over the five-year span. Beginning at 231 days in 2020 and holding steady through 2021, it increased significantly to 281 days in 2022 and peaked at 411 days in 2023. By 2024, it sharply declined to 199 days, reaching its lowest level in the observed period. This pattern suggests substantial variation in inventory turnover efficiency, with a marked slowdown in 2023 followed by an improvement in 2024.

Average Receivable Collection Period

This metric showed a general upward trend from 68 days in 2020 to a high of 99 days in 2023, before decreasing substantially to 77 days in 2024. The increasing trend until 2023 indicates a lengthening in the time taken to collect receivables, potentially affecting short-term liquidity. The subsequent reduction in 2024 suggests improvements in collections efficiency or credit management.

Average Payables Payment Period

The average payables payment period declined steadily over the period, starting at 84 days in 2020 and decreasing to 54 days by 2024. This continuous reduction indicates a tendency toward faster payments to suppliers, which could reflect changes in payment policies or improved cash availability.

Cash Conversion Cycle

The cash conversion cycle closely mirrors the fluctuations in inventory and receivables periods. It increased from 215 days in 2020 to a peak of 441 days in 2023, more than doubling over the period. In 2024, it reduced sharply to 222 days, just above the initial 2020 level. This volatility suggests significant shifts in working capital management efficiency, with 2023 indicating a stress period in liquidity conversion and 2024 showing recovery towards more efficient operations.