Automatic Data Processing Inc. (NASDAQ:ADP)

The receivables turnover ratio exhibits a generally declining trend from September 2016 through March 2022, decreasing from 7.32 to 4.96. This decline indicates a gradual slowdown in the frequency with which the company collects its accounts receivable over the observed periods. Correspondingly, the average receivable collection period tends to increase, moving from 50 days to 74 days, suggesting that the company is taking longer to collect receivables as time progresses.

In contrast, the payables turnover ratio fluctuates significantly over the same period with no clear linear trend, showing notable peaks such as 113.48 in December 2021 and 113.6 in March 2022. These spikes imply periods where the company is paying its suppliers more rapidly. The average payables payment period remains relatively stable, ranging mostly between 3 to 8 days and showing a mild decrease in certain quarters, with the shortest periods occurring near the end of the timeline. This stability indicates consistent payment behavior toward suppliers, albeit with some periods of accelerated payments.

The working capital turnover ratio displays considerable volatility with sharp increases and decreases throughout the timeline. From September 2016 at 3.49, the ratio climbs irregularly to a peak of 46.64 in September 2019, followed by a drop and further fluctuations, ending at 20.2 in March 2022. These fluctuations signal variability in how effectively the company utilizes its working capital to generate revenue, with periods of markedly increased efficiency interspersed with contraction.

Overall, the data suggest a trend of slower collection of receivables coupled with stable but occasionally accelerated payment to suppliers. The fluctuating working capital turnover indicates variability in operational efficiency or changes in working capital management strategies over the quarters analyzed.

Receivables Turnover

Declining trend from 7.32 to 4.96, indicating slower receivables collection.

Average Receivable Collection Period

Increasing from 50 to 74 days, reflecting longer time to collect receivables.

Payables Turnover

Variable with peaks above 100, showing periods of faster payment to suppliers.

Average Payables Payment Period

Mostly stable around 3 to 8 days, slight tendency toward shorter periods at the end.

Working Capital Turnover

Highly volatile with exceptional peaks (up to 46.64), indicating fluctuating efficiency in working capital use.

The revenues exhibited a generally upward trend over the observed periods, increasing from approximately $2.92 billion in September 2016 to about $4.51 billion by March 2022. While there were some fluctuations, the overall progression demonstrates growth in sales revenue. Notably, sharp rises occurred around early 2019 and early 2022, though some quarters, such as mid-2020, experienced a dip, potentially reflecting external economic influences during that time.

Accounts receivable, net of allowance for doubtful accounts, showed a steady increase over the time span. Starting at around $1.62 billion in late 2016, this figure rose consistently to approximately $3.25 billion by the first quarter of 2022. This escalation suggests an accumulation of receivables corresponding with increased revenue, though sustained growth in receivables alongside revenues could reflect either extended credit terms or slower collections.

The receivables turnover ratio declined moderately throughout the periods, moving from 7.32 in September 2016 down to 4.96 by March 2022. This decline indicates a lengthening in the average collection period, signifying that the company collected its accounts receivable more slowly over time. The turnover ratio experienced some variability, with more pronounced decreases noted around late 2018 and early 2022. This trend may point to less efficient receivables management or changes in customer payment behavior.

Summary of Trends

Revenues increased overall, signaling business growth with some quarter-to-quarter volatility.

Accounts receivable rose steadily, tracking revenue growth but possibly indicating longer collection times.

Receivables turnover declined, reflecting slower collections and potential challenges in managing credit sales.

Costs of Revenues

The costs of revenues exhibit a generally increasing trend over the observed period. Beginning around $1.74 billion in September 2016, costs rose moderately through the end of 2017 and continued to climb with some fluctuations up to $2.51 billion by March 2022. Notably, there are recurring seasonal variations with some quarters experiencing slight declines or plateaus, but the longer-term trajectory is upward, indicating growth in cost structure aligned with operational scale or increased business activity.

Accounts Payable

Accounts payable show significant variability over time without a clear long-term trend. The values fluctuate between approximately $78 million and $151 million, with notable dips around late 2021 and mid-2020. The volatility in accounts payable suggests changes in payment terms, supplier negotiations, or operational cash management strategies across quarters. The relatively low balances in specific quarters may reflect accelerated payments or reduced credit purchases during those periods.

Payables Turnover Ratio

The payables turnover ratio demonstrates considerable fluctuation, ranging from as low as approximately 48.56 to values exceeding 113 at the end of the period. This implies variability in how frequently the company settles its payables. Higher turnover values indicate faster payments, which are especially prominent in recent quarters, suggesting a trend toward quicker settlement of obligations. Conversely, certain quarters show lower turnover ratios, reflecting slower payment cycles. The overall pattern points to changing working capital management approaches, potentially reacting to external financial conditions or internal liquidity preferences.

The quarterly financial data exhibits notable fluctuations and trends in working capital, revenues, and working capital turnover ratios over the observed periods.

Working Capital

Working capital demonstrates a generally downward trend from September 2016 through September 2019. Starting at approximately 3.4 billion USD, it declines to a low near 308 million USD by the end of the third quarter of 2019. This substantial reduction suggests a tightening of the company’s short-term liquidity or a shift in operational asset and liability management within that timeframe.

After this trough, working capital recovers in 2020, reaching a peak of around 2.5 billion USD by September 2020 and December 2020, indicating improved liquidity or adjustments to current assets and liabilities. Subsequently, it shows a decline once more toward early 2022, ending at approximately 797 million USD. This volatility in working capital points to varying capital management strategies or external factors influencing current assets and liabilities over the period.

Revenues

Revenues display a growth trend with fluctuations, moving from about 2.9 billion USD in September 2016 to 4.5 billion USD by March 2022. Despite short-term periodic declines, particularly observable in mid-2020 coinciding with known global economic disruptions, the overall trend is upward.

The increase in revenues over this period denotes expansion or increased sales activity. Fluctuations around mid-2020 suggest some impact on sales possibly related to external disruptions, yet the company recovers strongly in subsequent quarters.

Working Capital Turnover Ratio

The working capital turnover ratio demonstrates considerable variability, reflecting the interplay between revenues and working capital levels. Early ratios range between 3.49 and 8.14 from September 2016 through June 2018, indicating moderate efficiency in using working capital to generate revenues.

Subsequently, a pronounced spike to 14.77 in September 2018, then a dramatic surge to 46.64 in September 2019, followed by heightened but fluctuating ratios into early 2022 (ranging from around 5.67 to 20.2), reveals periods where working capital was significantly lower relative to revenues. This suggests intensified operational efficiency or leaner capital structures, though it may also signal potential liquidity constraints or aggressive working capital management.

The dramatic peak in late 2019 and corresponding high turnover ratios likely result from the severely diminished working capital base during that period combined with relatively stable revenue generation.

In summary, the data indicates a company that has experienced substantial shifts in working capital management, with a generally increasing revenue trend amidst periods of capital tightening. The large fluctuations in working capital turnover ratios highlight variable efficiency and capital management strategies over time, with particular anomalies around late 2019 suggesting concentrated efforts or external influences impacting short-term financial resources.

The analysis focuses on two key financial metrics: receivables turnover ratio and average receivable collection period, covering multiple quarterly periods.

Receivables Turnover Ratio

The receivables turnover ratio shows a general declining trend over the periods analyzed. Initially, the ratio stood at a relatively high level of 7.32, then fluctuated before experiencing a significant decrease from around 6.72 to a low of 4.96 in the last period. This decline suggests a reduction in the efficiency of collecting receivables, indicating that the company is taking longer to convert receivables into cash.

Average Receivable Collection Period

This metric exhibits an increasing trend, corroborating the trend observed in the receivables turnover ratio. The average collection period started at 50 days and gradually increased, reaching a peak of 74 days in the last quarter. This increase signifies that the company is allowing more days on average for the collection of receivables, which may impact liquidity.

Relationship Between Metrics

The inverse correlation between the receivables turnover ratio and the average collection period is consistent throughout the timeline. As the turnover ratio declines, the collection period tends to increase, reflecting deteriorating collection efficiency.

Implications

The trend suggests a potential weakening in the company's credit management or collection policies. Prolonged receivable periods might affect cash flow and working capital requirements. It is advisable to investigate underlying causes such as changes in credit terms, customer payment behaviors, or economic conditions impacting collections.

Payables Turnover

The payables turnover ratio demonstrates significant fluctuation over the reported periods, ranging between approximately 48.56 and 113.6. Initially, from late 2016 to mid-2017, the turnover experienced a moderate decline followed by recovery. Notably, from early 2020 onward, there is a marked increase in the ratio, reaching a peak exceeding 113 by early 2022. This suggests an acceleration in the company's frequency of settling its payables.

Average Payables Payment Period

The average payables payment period inversely correlates with payables turnover and exhibits variation between 3 and 8 days. Early periods exhibit higher days payable, peaking at 8 days in mid-2017, then gradually declining over time. Starting in early 2020, the payment period shortens markedly, falling to as low as 3 days in the most recent periods. This indicates a trend toward quicker payment of outstanding payables.

Overall Trends and Insights

The data indicates that the company has generally accelerated its payables processing over the observed timeframe, particularly after 2020. The shortened payment period and increased turnover ratio could reflect stronger liquidity, operational efficiency, or a strategic decision to pay suppliers more promptly. These trends suggest enhanced management of accounts payable and potentially improved supplier relations.