Applied Materials Inc. (NASDAQ:AMAT)

The operational activity ratios exhibit a cyclical pattern with a general trend toward lengthening the cash conversion cycle over the observed period. While efficiency peaked in late 2021 and 2022, there is a noticeable deterioration in the speed of asset turnover and collection periods moving into 2026.

Inventory Management Efficiency

Inventory turnover demonstrates moderate volatility, starting at 2.55 and peaking at 2.82 in October 2021. A subsequent decline led to a low of 2.32 in January 2023, followed by a recovery phase peaking at 2.63 in late 2024. However, the most recent trend shows a decrease to 2.38 by July 2026. This is mirrored in the average inventory processing period, which fluctuated from a low of 129 days in October 2021 to a high of 157 days in early 2023, eventually settling at 154 days by the end of the period.

Receivables and Collection Performance

A consistent downward trend is observed in receivables turnover, which fell from 5.98 in January 2021 to 4.01 by July 2026. This decline indicates a slowing rate of credit recovery. Correspondingly, the average receivable collection period has extended significantly, rising from 61 days in early 2021 to a peak of 91 days by July 2026. While there were intermittent improvements in collection speed throughout 2023 and 2024, the overall trajectory suggests a weakening in short-term credit recovery efficiency.

Working Capital Utilization

Working capital turnover experienced a period of growth, rising from 1.86 in January 2021 to a peak of 3.02 in October 2022, suggesting an initial increase in the efficiency of using current assets and liabilities to generate revenue. Following this peak, the ratio entered a gradual decline, ending at 2.09 in July 2026, indicating that working capital is now less effectively leveraged relative to sales than it was during the 2022 peak.

Overall Operating Cycle

The total operating cycle has expanded over the analyzed timeframe, increasing from 204 days in January 2021 to 245 days by July 2026. The cycle reached an interim peak of 243 days in October 2022, followed by a period of relative stabilization between 209 and 222 days from 2024 to early 2025. The recent sharp increase to 245 days is primarily driven by the simultaneous rise in both inventory processing and receivable collection periods, indicating a slower overall conversion of operational inputs into cash.

The operational activity regarding inventory management reflects a period of overall expansion characterized by cyclical fluctuations in efficiency. While both the cost of products sold and total inventory levels exhibit long-term upward trajectories, the inventory turnover ratio has experienced several phases of contraction and recovery, indicating varying levels of alignment between stock accumulation and sales volume.

Cost of Products Sold Trends

A sustained increase in the cost of products sold is observed, rising from 2,813 million US$ in January 2021 to 4,529 million US$ by July 2026. This growth indicates a significant expansion in operational scale, with the most pronounced increase occurring in the final two reported quarters of the period.

Inventory Level Management

Inventories grew from 3,925 million US$ in January 2021 to 6,564 million US$ in July 2026. A notable period of accumulation occurred between May 2022 and January 2023, during which inventories rose from 5,009 million US$ to a peak of 6,054 million US$. Following a period of moderate reduction and stabilization through 2023, inventory levels began to climb again starting in late 2024.

Inventory Turnover Ratio Dynamics

The inventory turnover ratio peaked at 2.82 in October 2021 before entering a period of decline, reaching a low of 2.32 in January 2023. This decline suggests that inventory growth outpaced the cost of products sold during this timeframe. A subsequent recovery phase is observed, with the ratio improving to 2.63 by October 2024. However, the final period shows a renewed downward trend, with the ratio decreasing to 2.38 by July 2026, signaling a reduction in the efficiency of inventory turnover relative to the volume of products sold.

The financial data indicates a general expansion in both revenue and net accounts receivable over the period from January 2021 through July 2026. While revenue grew from 5,162 million to 9,115 million, the receivables turnover ratio experienced a long-term downward trajectory, signaling a deceleration in the efficiency of credit collection relative to sales growth.

Revenue and Receivables Growth Correlation

Revenue exhibited a steady upward trend, characterized by a significant surge in the final two quarters of the observed period. Simultaneously, net accounts receivable increased from 3,045 million to 7,691 million. In several instances, the growth in receivables outpaced the growth in revenue, which exerted downward pressure on the turnover ratio and suggests a larger portion of sales is being held as credit.

Receivables Turnover Volatility

The turnover ratio peaked at 5.98 in January 2021 and reached its lowest point of 4.01 in July 2026. A period of relative stability and modest recovery occurred between January 2022 and October 2023, during which the ratio fluctuated between a low of 4.25 and a high of 5.64. However, a consistent decline followed after October 2023, indicating a gradual lengthening of the average collection cycle.

Analysis of Recent Operating Efficiency

The sharp decline in the turnover ratio during the final quarters of the period coincides with the most rapid increase in revenue. The drop to 4.01 in July 2026 suggests that the acceleration in sales may be supported by more liberal credit terms granted to customers or a decrease in the speed of payment processing. This represents a notable shift in operating activity compared to the higher efficiency levels observed at the start of 2021.

The analysis of working capital turnover reveals a cyclical pattern characterized by an initial phase of increasing operational efficiency, followed by a period of capital accumulation and subsequent stabilization.

Efficiency Expansion (January 2021 – October 2022)

A consistent upward trend in working capital turnover is observed during this period, with the ratio rising from 1.86 to a peak of 3.02. This improvement was driven by a simultaneous increase in revenue and a reduction in working capital, which declined from 9,765 million US$ to 8,546 million US$. This suggests an optimized utilization of short-term assets and liabilities to generate sales.

Capital Intensification (January 2023 – July 2024)

The trend reversed starting in early 2023, as the turnover ratio declined from 2.77 to 2.00. During this interval, working capital grew significantly, rising from 9,465 million US$ to 13,443 million US$, while revenue remained relatively stagnant, fluctuating between 6,425 million US$ and 6,778 million US$. The divergence indicates that the growth in operating liquidity outpaced revenue generation, leading to lower relative efficiency in working capital deployment.

Stabilization and Revenue Scaling (October 2024 – July 2026)

In the final period, the working capital turnover ratio stabilized, fluctuating within a narrow band between 2.09 and 2.42. While working capital continued its upward trajectory to 14,738 million US$, a sharp acceleration in revenue occurred toward the end of the period, reaching 9,115 million US$ by July 2026. This surge in top-line growth offset the increasing capital base, preventing further erosion of the turnover ratio and suggesting a transition toward a new scale of operations.

Overall, the data indicates a strategic shift from a lean operational model in 2021-2022 to a more capital-heavy structure by 2026, with the company maintaining a turnover ratio generally above 2.0 despite substantial increases in the working capital base.

The average inventory processing period exhibits a cyclical pattern of fluctuation, ranging from a low of 129 days to a high of 157 days. This volatility indicates periodic shifts in inventory management efficiency and the speed at which stock is converted into sales.

Initial Efficiency Improvement (2021)

During the first three quarters of 2021, a steady improvement in operational efficiency is observed. The inventory processing period declined from 143 days in January to a minimum of 129 days by October 2021, correlating with a peak inventory turnover ratio of 2.82.

Cycle Extension and Peak Duration (2022 - Early 2023)

A significant reversal occurred throughout 2022, where the processing period lengthened consistently. The duration peaked at 157 days between October 2022 and January 2023. This period represents the lowest point of inventory efficiency, as evidenced by the inventory turnover ratio dropping to 2.32.

Operational Stabilization and Recovery (Mid 2023 - Early 2025)

From April 2023 through January 2025, a trend of gradual optimization is evident. The processing period was reduced from 152 days to 139 days. This phase indicates a return to leaner inventory levels or an increase in sales velocity, with the turnover ratio recovering to 2.63.

Recent Upward Trend in Processing Time (Mid 2025 - 2026)

The most recent data shows a renewed increase in the time required to process inventory. Starting from 142 days in January 2025, the period climbed steadily to 156 days by January 2026, before settling at 154 days in July 2026. This suggests a recent decline in turnover efficiency, with the ratio retreating to 2.38.

The average receivable collection period exhibits a pattern of periodic fluctuation with an overall upward trend in the duration required to convert receivables into cash. The metric began at 61 days in January 2021 and reached a historical peak of 91 days by July 2026, indicating a general deceleration in collection efficiency over the analyzed timeframe.

Initial Volatility and Peaks (2021–2022)

Collection periods remained relatively stable between 61 and 65 days during the first half of 2021 before experiencing a significant increase to 78 days in October 2021. While a brief recovery to 67 days occurred in January 2022, the period saw a subsequent climb to 86 days by October 2022, which synchronized with a decline in the receivables turnover ratio to 4.25.

Mid-Term Stabilization (2023–2024)

A phase of relative stabilization was observed throughout 2023 and the first half of 2024, with the collection period fluctuating within a range of 65 to 76 days. The most efficient collection window during this phase occurred in January 2024, where the period dropped to 65 days, supported by a turnover ratio of 5.64.

Recent Performance Deterioration (2025–2026)

Beginning in January 2025, a renewed upward trend in the collection period emerged, reaching 80 days by April 2025. Despite a temporary improvement that brought the period down to 64 days in January 2026, a sharp increase followed in the final two quarters. The collection period rose to 80 days in April 2026 and concluded at 91 days in July 2026, coinciding with the lowest recorded turnover ratio of 4.01.

The operating cycle exhibits a general upward trajectory over the analyzed period, reflecting an extension in the time required to convert inventory into cash. Starting at 204 days in January 2021, the cycle reached a peak of 243 days in October 2022 and ended at its highest point of 245 days in July 2026. This expansion is driven by fluctuations in both inventory management and receivable collection efficiencies.

Average Inventory Processing Period

The duration for processing inventory shows significant volatility, fluctuating between a minimum of 129 days in October 2021 and a maximum of 157 days in early 2023. An initial period of improvement was observed through late 2021, followed by a steady increase that peaked in January and April 2023. After a phase of relative stabilization and slight reduction between October 2024 and January 2025, the period trended upward again, reaching 154 days by July 2026. This suggests periodic challenges in inventory turnover or strategic stockpiling.

Average Receivable Collection Period

The collection of receivables demonstrates irregular patterns with distinct spikes. The period began at 61 days in January 2021, experienced a notable surge to 86 days by October 2022, and subsequently recovered to a low of 65 days in January 2024. However, a sharp upward trend is evident in the final periods, culminating in a peak of 91 days in July 2026. These fluctuations indicate varying efficiency in credit collection or changes in customer payment terms over the long term.

Operating Cycle Correlation

The operating cycle closely mirrors the combined volatility of inventory and receivables. The most significant expansion occurred between January 2022 and October 2022, where the cycle grew from 198 to 243 days. While a period of contraction brought the cycle down to 209 days by October 2024, the most recent data indicates a substantial widening, increasing from 215 days in July 2025 to 245 days by July 2026. This recent increase is primarily attributed to a simultaneous rise in both inventory processing and receivable collection times.