Cadence Design Systems Inc. (NASDAQ:CDNS)

An examination of short-term operating activity ratios reveals fluctuating performance over the five-year period. Inventory turnover demonstrates a slight increase from 2021 to 2022, followed by a decline in subsequent years, ending at 2.38 in 2025. Receivables turnover generally decreased throughout the period, with a notable drop from 8.85 in 2021 to 5.61 in 2025. Payables turnover exhibits significant volatility, with a substantial peak in 2024 before returning to a level closer to that of 2022. Working capital turnover experienced a marked increase between 2021 and 2023, but then decreased sharply in 2024 and 2025, remaining constant at 1.75 for those years.

Inventory Management

The average inventory processing period lengthened from 138 days in 2021 to 153 days in 2025, suggesting a slower rate of inventory conversion into sales. This increase aligns with the declining inventory turnover ratio, indicating potential inefficiencies in inventory management or a buildup of inventory.

Receivables Management

The average receivable collection period consistently increased from 41 days in 2021 to 65 days in 2025. This lengthening collection period, coupled with the decreasing receivables turnover, suggests a potential slowdown in collecting payments from customers, which could indicate deteriorating credit quality or less effective collection practices.

Payables Management

The average payables payment period was not available for 2021, but increased from 46 days in 2022 to 77 days in 2023, before dramatically decreasing to 3 days in 2024 and then increasing again to 47 days in 2025. The extreme value in 2024 warrants further investigation as it deviates significantly from other periods. The fluctuations suggest inconsistent management of payment terms with suppliers.

Operating and Cash Cycles

The operating cycle lengthened steadily from 179 days in 2021 to 218 days in 2025, reflecting the combined effect of slower inventory turnover and a longer receivable collection period. The cash conversion cycle, also unavailable for 2021, increased from 119 days in 2023 to 196 days in 2024, before decreasing to 171 days in 2025. The increase in the cash conversion cycle indicates that the company is taking longer to convert its investments in inventory and receivables into cash.

Overall, the trends suggest a potential weakening in the efficiency of working capital management, particularly concerning receivables collection and inventory turnover. The significant volatility in payables turnover and the corresponding payment period requires further scrutiny to understand the underlying causes and potential implications.

The analysis reveals trends in inventory turnover over a five-year period. Cost of revenue consistently increased throughout the period, while inventories also exhibited an upward trajectory. However, the inventory turnover ratio demonstrates a more nuanced pattern.

Inventory Turnover Trend

The inventory turnover ratio began at 2.65 in 2021, increasing to 2.90 in 2022. A subsequent decline to 2.39 was observed in 2023. The ratio experienced a slight recovery to 2.51 in 2024, but decreased again to 2.38 in 2025.

The increase in cost of revenue from 2021 to 2023 was accompanied by a corresponding increase in inventory levels. Despite the rising cost of revenue, the inventory turnover ratio decreased in 2023, suggesting that inventory was not being sold as quickly relative to its cost. The slight increase in the ratio in 2024 did not sustain, as it fell back to 2.38 in 2025.

Inventory and Cost of Revenue Relationship

While cost of revenue increased substantially from 2021 to 2025 (from US$307,006 thousand to US$722,249 thousand), inventories also rose significantly, moving from US$115,721 thousand to US$303,545 thousand. This parallel increase suggests a potential correlation between production/procurement and sales, but the declining inventory turnover ratio indicates that the growth in inventory outpaced the growth in sales, particularly in 2023 and 2025.

The observed fluctuations in the inventory turnover ratio warrant further investigation. A consistent decline or stagnation in this ratio could indicate inefficiencies in inventory management, potential obsolescence of inventory, or a slowdown in sales relative to inventory levels. The company should assess its inventory management practices and sales strategies to optimize inventory turnover and minimize carrying costs.

An examination of the provided financial information reveals trends in receivables turnover over a five-year period. Revenue consistently increased throughout the period, while net receivables also generally increased, though the relationship between the two is reflected in the receivables turnover ratio.

Receivables Turnover Trend

The receivables turnover ratio decreased from 8.85 in 2021 to 5.61 in 2025. This indicates a lengthening of the average collection period for receivables.

Initially, the ratio declined from 8.85 in 2021 to 7.32 in 2022, coinciding with a substantial increase in net receivables relative to revenue. A slight recovery to 8.36 was observed in 2023, but this was followed by a further decline to 6.82 in 2024 and 5.61 in 2025. The most significant decrease occurred between 2024 and 2025.

Revenue and Receivables Relationship

Revenue increased each year, from US$2,988,244 thousand in 2021 to US$5,296,759 thousand in 2025, representing a growth of approximately 77.3%. Net receivables also increased over the same period, rising from US$337,596 thousand to US$944,939 thousand, an increase of roughly 179.7%. The proportionally larger increase in receivables compared to revenue is a key driver of the declining turnover ratio.

The decreasing receivables turnover suggests that, despite growing sales, the company is taking longer to collect payment from its customers. This could be due to a variety of factors, including changes in credit terms offered to customers, a shift in the customer base towards those with longer payment cycles, or potential issues with the effectiveness of the collections process. Further investigation would be required to determine the underlying causes of this trend.

The analysis of payables turnover reveals significant fluctuations over the observed period. While information for 2021 is incomplete, a clear pattern emerges from 2022 through 2025, characterized by substantial volatility in the ratio.

Payables Turnover Trend

In 2022, the payables turnover ratio stood at 7.89. This decreased considerably to 4.77 in 2023, indicating a slower rate of paying suppliers. A dramatic increase was then observed in 2024, with the ratio reaching 116.56. This suggests a very rapid turnover of payables during that year. Finally, the ratio decreased again in 2025, settling at 7.73, a value comparable to that of 2022.

The substantial increase in payables turnover in 2024 warrants further investigation. This could be due to a number of factors, including a change in payment terms with suppliers, a deliberate strategy to reduce liabilities, or a significant increase in purchases followed by rapid payment. The return to a level similar to 2022 in 2025 suggests that the conditions driving the 2024 increase were not sustained.

Cost of Revenue and Payables Relationship

Cost of revenue consistently increased throughout the period, rising from US$307,006 thousand in 2021 to US$722,249 thousand in 2025. The fluctuations in payables turnover do not appear to be directly proportional to the increases in cost of revenue. For example, cost of revenue increased significantly between 2022 and 2023, but payables turnover decreased. Conversely, cost of revenue increased between 2023 and 2024, while payables turnover increased dramatically.

The available information on trade accounts payable is incomplete for 2021 and 2024. The significant decrease in reported payables in 2024 (to US$5,555 thousand) likely contributed to the exceptionally high payables turnover ratio observed in that year and should be examined closely. The increase in payables to US$93,491 thousand in 2025 is also notable.

Overall Assessment

The payables turnover ratio demonstrates considerable instability. While the ratio in 2022 and 2025 are similar, the large variations in 2023 and 2024 suggest underlying changes in the company’s payment practices or operational circumstances. Further analysis, including a review of payment terms, supplier relationships, and cash flow management, is recommended to understand the drivers behind these fluctuations.

The working capital turnover ratio exhibited significant fluctuations over the five-year period. Initially, the ratio increased substantially before declining markedly in later years. This suggests evolving efficiency in utilizing working capital to generate revenue.

Working Capital Trend

Working capital decreased considerably from 2021 to 2022, then experienced a modest increase through 2023. A substantial rise in working capital is then observed in 2024 and 2025, indicating a significant investment in current assets relative to current liabilities during those periods.

Revenue Trend

Revenue demonstrated consistent growth throughout the period, increasing year-over-year from 2021 to 2025. This positive trend suggests strong sales performance and market demand.

Working Capital Turnover Analysis

The working capital turnover ratio increased from 4.01 in 2021 to 9.92 in 2022, indicating improved efficiency in converting working capital into sales. The ratio remained relatively stable at 10.61 in 2023. However, a substantial decrease to 1.75 occurred in both 2024 and 2025. This decline suggests a less efficient utilization of working capital in generating revenue during those years, potentially due to the significant increase in working capital levels.

The stabilization at 1.75 in 2024 and 2025, despite continued revenue growth, implies that the increase in working capital is not translating into a proportional increase in sales. This could be attributed to factors such as increased inventory levels, slower collection of receivables, or extended payment terms to suppliers.

The observed pattern suggests a shift in operational strategy or external factors impacting the relationship between working capital and revenue generation. Further investigation into the components of working capital – specifically accounts receivable, inventory, and accounts payable – is recommended to understand the drivers behind the declining turnover ratio in the latter years.

The average inventory processing period exhibited fluctuations over the five-year period. While inventory turnover showed some variability, the processing period demonstrated a general tendency towards lengthening, with notable increases in later years.

Average Inventory Processing Period

The average inventory processing period decreased from 138 days in 2021 to 126 days in 2022, indicating a more efficient conversion of inventory to sales during that timeframe. However, this improvement was not sustained. A substantial increase to 152 days was observed in 2023, suggesting a slowdown in the inventory cycle. The period then moderated slightly to 145 days in 2024, but increased again to 153 days in 2025, reaching its highest point over the analyzed period.

The lengthening of the average inventory processing period in 2023, 2024, and 2025 warrants further investigation. Potential contributing factors could include shifts in product mix towards slower-moving items, supply chain disruptions, or changes in inventory management strategies. The increase occurred alongside a decrease in inventory turnover, suggesting a correlation between the two metrics.

Inventory Turnover

Inventory turnover increased from 2.65 in 2021 to 2.90 in 2022, aligning with the shorter average inventory processing period observed in the same year. However, turnover decreased to 2.39 in 2023, and remained relatively stable at 2.51 and 2.38 in 2024 and 2025 respectively. This suggests a weakening in the rate at which inventory is sold, potentially contributing to the extended processing period.

The combined trends suggest a potential inefficiency in inventory management in the later years of the period. While the initial improvement in 2022 was positive, the subsequent deterioration in both metrics indicates a need for review of inventory control processes and demand forecasting accuracy.

An examination of short-term activity ratios reveals a lengthening average receivable collection period alongside a declining receivables turnover ratio over the five-year period. These trends suggest a potential shift in the company’s credit policies or a decrease in the efficiency of collecting outstanding receivables.

Receivables Turnover

The receivables turnover ratio decreased from 8.85 in 2021 to 5.61 in 2025. This indicates that the company is collecting receivables at a slower rate relative to its credit sales. The most significant decline occurred between 2022 and 2024, followed by a further decrease in 2025. This decreasing trend warrants further investigation to determine the underlying causes.

Average Receivable Collection Period

Corresponding with the decline in receivables turnover, the average receivable collection period increased from 41 days in 2021 to 65 days in 2025. This signifies that, on average, it is taking longer to convert receivables into cash. The increase was relatively moderate between 2021 and 2023, but accelerated between 2023 and 2025. A consistently increasing collection period could indicate issues with creditworthiness of customers, inefficiencies in the billing process, or a deliberate strategy to offer more lenient credit terms.

The combined trends of decreasing receivables turnover and increasing average collection period suggest a potential weakening in the management of accounts receivable. Further analysis should focus on identifying the reasons for these changes, including a review of credit policies, customer payment behavior, and the effectiveness of collection efforts. Monitoring these ratios closely in future periods is recommended to assess whether these trends continue and to evaluate the impact on the company’s cash flow.

The operating cycle of the company has demonstrated a generally increasing trend over the five-year period examined. Individual components contributing to this cycle – average inventory processing period and average receivable collection period – exhibit distinct patterns that influence the overall trend.

Average Inventory Processing Period

The average inventory processing period fluctuated over the period. It decreased from 138 days in 2021 to 126 days in 2022, indicating improved efficiency in converting inventory into finished goods. However, this was followed by an increase to 152 days in 2023, and remained elevated at 145 days in 2024 before reaching 153 days in 2025. This suggests potential challenges in inventory management in the later years of the period.

Average Receivable Collection Period

The average receivable collection period showed a consistent upward trend. Starting at 41 days in 2021, it increased to 50 days in 2022, 44 days in 2023, 54 days in 2024, and reached 65 days in 2025. This indicates a lengthening of the time required to collect payments from customers, potentially reflecting changes in credit terms or customer payment behavior.

Operating Cycle

The operating cycle, calculated as the sum of the average inventory processing period and the average receivable collection period, increased from 179 days in 2021 to 218 days in 2025. While a slight decrease was observed in 2022 (176 days), the cycle length generally trended upward, driven primarily by the increasing receivable collection period. The increase in the operating cycle suggests that the company is taking longer to convert its investments in inventory and receivables into cash.

The combined effect of these trends suggests a potential slowdown in the company’s short-term operating efficiency. The lengthening receivable collection period is a key driver of this trend and warrants further investigation to determine the underlying causes and potential mitigation strategies.

The average payables payment period exhibited considerable fluctuation over the observed period. Initial values indicate a period of 46 days in 2022, increasing to 77 days in 2023, before dramatically decreasing to 3 days in 2024, and returning to 47 days in 2025.

Average Payables Payment Period

In 2022, the average payables payment period was 46 days. This increased by 67% to 77 days in 2023, suggesting a lengthening of the time taken to settle obligations to suppliers. A significant and abrupt decrease occurred in 2024, with the period falling to just 3 days. This represents a 96% reduction from the prior year. The period then increased again in 2025, reaching 47 days, a substantial rise from 2024 but remaining close to the initial value observed in 2022.

The volatility in the average payables payment period warrants further investigation. The sharp decline in 2024, followed by a partial recovery in 2025, could indicate changes in supplier relationships, payment terms, or potentially, a one-time event impacting payables. The initial increase in 2023 and subsequent fluctuations suggest potential shifts in working capital management strategies or external factors influencing payment practices.

Payables Turnover

Payables turnover demonstrates an inverse relationship with the average payables payment period. It was not reported for 2021. In 2022, it was 7.89, decreasing to 4.77 in 2023, then increasing dramatically to 116.56 in 2024, and decreasing to 7.73 in 2025. This pattern directly correlates with the changes observed in the average payables payment period, confirming the reciprocal nature of these metrics.

The substantial changes in both the average payables payment period and payables turnover highlight a dynamic payables management environment. Continued monitoring of these ratios is recommended to understand the underlying drivers of these fluctuations and their potential impact on liquidity and supplier relationships.

The short-term operating activity ratios reveal evolving trends in the company’s working capital management between 2021 and 2025. Specifically, the average inventory processing period, average receivable collection period, average payables payment period, and the resulting cash conversion cycle demonstrate notable fluctuations over the five-year period.

Average Inventory Processing Period

The average inventory processing period exhibited volatility. It decreased from 138 days in 2021 to 126 days in 2022, then increased to 152 days in 2023. A slight decrease to 145 days was observed in 2024, followed by a further increase to 153 days in 2025. This suggests potential inconsistencies in inventory management efficiency.

Average Receivable Collection Period

The average receivable collection period generally increased over the period. Starting at 41 days in 2021, it rose to 50 days in 2022, decreased slightly to 44 days in 2023, and then increased significantly to 54 days in 2024 and 65 days in 2025. This lengthening collection period could indicate a need to review credit policies or collection efforts.

Average Payables Payment Period

The average payables payment period showed substantial variation. Information was unavailable for 2021. In 2022, it was 46 days, increasing to 77 days in 2023. A dramatic decrease to 3 days was noted in 2024, followed by an increase to 47 days in 2025. The volatility suggests changes in supplier relationships or payment strategies.

Cash Conversion Cycle

The cash conversion cycle experienced significant fluctuations. It was unavailable for 2021, at 130 days in 2022, and 119 days in 2023. A substantial increase to 196 days occurred in 2024, followed by a decrease to 171 days in 2025. The cycle’s lengthening in 2024, despite a decrease in the inventory processing period, is likely attributable to the combined effect of increased receivable collection times and the unusually short payables payment period. The 2025 value indicates a partial correction, but remains elevated compared to 2022 and 2023.

Overall, the trends suggest a dynamic working capital environment. The increasing receivable collection period and fluctuating payables payment period are key areas to monitor, as they significantly impact the cash conversion cycle and, consequently, the company’s short-term liquidity.