Cadence Design Systems Inc. (NASDAQ:CDNS)

The analysis of the financial ratios over multiple quarters reveals several notable trends in the company's operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio exhibits a general decline from 4.11 to approximately 2.35 over the first 13 quarters, indicating a slowdown in how frequently inventory is sold and replaced. There is some recovery observed towards the later quarters, peaking near 3.25 before falling again to around 2.63. This pattern suggests periods of slower inventory movement, potentially reflecting changes in demand or inventory management challenges.

Receivables Turnover

This ratio fluctuates moderately throughout the periods, ranging mostly between 6.9 and 10.46. The highest values appear sporadically, with no clear sustained upward or downward trend. This suggests relatively stable efficiency in collecting receivables, although occasional fluctuations could reflect changes in credit terms or customer payment behavior.

Working Capital Turnover

A significant increase is observed from around 4.0 to peaks near 10.61 between the third and eighth quarters, indicating more efficient use of working capital during this period. However, a sharp decline follows, settling near 1.8 in the last several quarters. This decline points to reduced efficiency in generating sales from working capital later on, which may signal operational or liquidity constraints.

Average Inventory Processing Period

The number of days inventory remains before being sold extends from 89 days up to a peak of approximately 201 days in a later quarter. This steady increase in inventory holding periods suggests slower inventory turnover, consistent with the declining inventory turnover ratio. Such lengthening may impact cash flows and storage costs adversely.

Average Receivable Collection Period

The average days to collect receivables hover mostly within a band of 35 to 54 days. There is variability but no clear long-term trend, indicating that the company’s credit and collection policies remain relatively stable over time.

Operating Cycle

The operating cycle, combining inventory and receivables periods, shows a general increase from 140 days to a maximum near 248 days, followed by some reduction but remaining elevated compared to the beginning of the period. A lengthening operating cycle implies an extended duration in cash conversion, which could stress working capital and liquidity.

In summary, the data depict a company experiencing increased inventory holding times and a longer operating cycle, with fluctuating but generally diminished efficiency in utilizing working capital. Receivables management remains comparatively stable. These patterns suggest a potential need for enhanced inventory management and working capital optimization to improve operational efficiency and financial flexibility.

Cost of Revenue

The cost of revenue exhibited notable fluctuations over the observed periods. Initially, there was a declining trend from early 2021 through the end of that year, with values decreasing from approximately 83,967 to 69,693 thousand US dollars. Subsequently, the cost saw a recovery and moderate growth during 2022, generally remaining in the range of 87,600 to 93,515 thousand US dollars.

Starting in the first quarter of 2023, the cost of revenue increasingly rose, peaking significantly at 219,991 thousand US dollars by the fourth quarter of 2024. The increase was somewhat volatile, with notable dips followed by recoveries in subsequent quarters. As of the latest reported period, the cost stabilized somewhat but remained elevated relative to earlier years, suggesting higher operational or production expenses in recent times.

Inventories

Inventory levels demonstrated a consistent upward trajectory over the analyzed timeframe. Beginning at 76,592 thousand US dollars in early 2021, inventories rose steadily through 2021 and 2022, reaching above 128,000 thousand US dollars by the end of 2022.

The upward trend continued more strongly into 2023 and 2024, with inventories peaking at approximately 293,350 thousand US dollars in the third quarter of 2024, then moderating somewhat in the following quarters. Inventory levels remained substantially higher in 2024 and 2025 compared to prior years, indicating either increased stock holdings or potentially slower inventory turnover in these periods.

Inventory Turnover Ratio

The inventory turnover ratio trended downward over the duration examined. Starting from a relatively strong ratio of 4.11 in early 2021, it declined steadily into 2022 and 2023, reaching lows near or below 2.5 by late 2023 and early 2024. This decline signifies slower inventory movement relative to cost of goods sold, which may reflect either elevated inventory accumulation or softening sales.

Thereafter, some recovery in the inventory turnover was observed, with the ratio increasing back above 3.0 in mid to late 2025. This partial rebound suggests improved efficiency in managing or liquidating inventory during the later stages of the period reviewed.

Revenue Analysis

The revenue of the company exhibits a generally upward trend over the periods analyzed. Starting from approximately $736 million in early 2021, revenue shows fluctuations within quarters but steadily increases to over $1.3 billion by the final quarter observed. Notably, there are peaks around the quarters ending in April 2022, March 2023, and December 2024. The growth is indicative of expanding business activities or improved sales performance, with short-term variations that suggest seasonal or market-driven influences.

Receivables, net

Net receivables demonstrate a pattern of growth overall, rising from about $389 million in early 2021 to approximately $755 million by the last period. The trajectory is punctuated by significant increases in certain quarters, such as the jump around December 2021 to December 2022 and again from June 2024 forward. These increases in receivables could reflect extended credit terms, slower collections, or increased sales volume, which aligns with rising revenue figures. Despite this growth, some quarters show decreases or stabilization in receivables, suggesting active management of collections or variations in credit policies.

Receivables Turnover Ratio

The receivables turnover ratio fluctuates markedly across the time frame, ranging from a low near 6.8 to a high exceeding 10. In early 2021, the ratio is around 7.2 to 7.4, improving significantly to peaks above 9 in late 2021 and again surpassing 10 in early 2024. However, there are intervening periods where the ratio declines substantially, including mid-2024 through late 2025, where turnovers hover closer to 7. This variability indicates inconsistent efficiency in collections relative to credit sales. Peaks in the ratio suggest improved cash collections or tightened credit controls, while decreases may reflect either slower collections or more liberal credit extension during those periods.

Overall Insights

The company shows strong revenue growth alongside a rising trend in receivables, indicating expanding business volume with a corresponding increase in credit sales or extended payment terms. The variability in receivables turnover indicates some inconsistency in collection efficiency, with occasional enhancements but also periods of decline. These trends highlight the importance of monitoring credit management to maintain liquidity and working capital health as the company continues to grow. The periodic fluctuations suggest opportunities to optimize receivables management to better support the upward revenue momentum.

Working Capital

The working capital exhibits a fluctuating trend over the periods analyzed. Initially, there is an increase from approximately 557 million to around 774 million by the second quarter of 2022. This is followed by a decline reaching a trough near 359 million at the end of 2022. From early 2023, the working capital again displays volatility, with a notable surge from 464 million in March 2024 to a peak exceeding 2.7 billion by the end of 2024 and into 2025. This sudden rise suggests significant changes in current assets or liabilities during these latter periods.

Revenue

Revenue shows an overall upward trajectory, rising from about 736 million in the second quarter of 2021 to a high of over 1.35 billion by the first quarter of 2025. Despite some fluctuations, including minor declines and recoveries within certain quarters, the general trend is growth. The peak periods often correspond with quarters reporting increased revenue exceeding 1.2 billion, reflecting sustained business expansion.

Working Capital Turnover

The working capital turnover ratio exhibits considerable variability throughout the timeline. Starting at around 5.03 in early 2021, it experiences dips and peaks, reaching a high around 10.61 by the end of 2023. This suggests increased efficiency in utilizing working capital to generate revenue during that period. However, from early 2024 onwards, the turnover ratio declines sharply to approximately 1.8 by late 2024 and into 2025, reflecting reduced efficiency or rapid increases in working capital relative to revenue growth in these most recent quarters.

Summary Insight

The data reflects a company undergoing dynamic financial changes with rising revenues over time, suggesting positive business momentum. However, the marked volatility in working capital and its turnover ratio points to shifts in operational management or working capital structure. With working capital dramatically increasing in later quarters while turnover decreases, it implies capital is accumulating faster than it is being employed to generate sales. This could indicate either increased investment in current assets or challenges in managing short-term resources efficiently, warranting further investigation.

Inventory Turnover

The inventory turnover ratio demonstrates a general downward trend from April 2021 through December 2023, falling from 4.11 to 2.39. This decline indicates that inventory was being sold and replaced less frequently over this period. A brief recovery is observed in mid-2024 with the ratio increasing to 2.79; however, this is followed by volatility thereafter, including a notable drop to 1.81 in September 2024 and a subsequent rebound to levels above 3 by mid-2025. The fluctuations suggest periodic changes in inventory management efficiency or sales cycles that impact how quickly inventory is turned over.

Average Inventory Processing Period

The average inventory processing period, measured in days, moves inversely to the inventory turnover ratio as expected. It increases significantly from 89 days in April 2021 to a peak of 201 days in September 2024. This indicates that the time required to process inventory lengthened considerably across this timeframe. After reaching this peak, the processing period decreases moderately to 112 days by September 2025 before rising again to 139 days at the end of the reported periods. These fluctuations align with the changes in inventory turnover, suggesting periods of slower inventory movement followed by partial improvements in inventory management.

Overall Analysis

There is a clear pattern of declining inventory turnover and increasing inventory processing time from early 2021 through 2024, which may reflect challenges in sales demand, supply chain inefficiencies, or strategic changes in inventory policies. The subsequent partial recovery in turnover ratios combined with a reduction in processing days indicates attempts to improve inventory handling and sales velocity. However, the volatility in both metrics towards the end of the period suggests ongoing operational adjustments or market variability affecting inventory dynamics.

The analysis of the receivables turnover ratio and the average receivable collection period over the specified quarterly intervals reveals variability and certain cyclical patterns in the company's efficiency in managing its receivables.

Receivables Turnover Ratio

This ratio fluctuates over the examined periods, ranging from a high of 10.46 to a low of 6.82. Initially, there is an upward trend from 7.21 to 9.09 within the first three quarters, followed by some oscillation around values between approximately 7.3 and 8.8 over the subsequent quarters. Notably, the highest value is observed during the quarter ending March 31, 2024 (10.46), indicating a period of heightened efficiency in collecting receivables.

However, after this peak, the turnover ratio tends to decrease with some volatility, demonstrating potential fluctuations in credit collection practices or changes in sales composition. The lowest observed turnover ratio of 6.82 at December 31, 2024, could indicate slower collection during that period or an increase in outstanding receivables relative to sales.

Average Receivable Collection Period

This metric, representing the average number of days to collect receivables, generally exhibits an inverse relationship to the turnover ratio, varying between 35 and 54 days.

Early in the period, the collection period consistently decreases from 51 days to 40 days, aligned with the increasing turnover ratio. However, it subsequently fluctuates, reaching a minimum of 35 days in the quarter ending March 31, 2024, corresponding to the turnover ratio peak. This reflects improved collection efficiency during that quarter.

Following this, the collection period lengthens again, peaking at 54 days by December 31, 2024, concurrent with the turnover ratio trough, suggesting a delay in receivables collection or changes in credit terms.

Overall Trends and Insights

The data highlight periodic improvement and deterioration in receivables management efficiency. The quarter ending March 31, 2024, stands out with optimal performance—high turnover and low collection days—suggesting effective credit control or favorable sales terms during that timeframe.

Subsequent quarters reveal a reversal in this trend, implying potential challenges such as extended payment terms, slower payments from customers, or a changing customer mix with differing credit behaviors.

Throughout the periods, the company demonstrates an ability to vary its collection efficiency, but the variability also signals a need to monitor receivables closely to maintain optimal working capital management and limit credit risk exposure.

The analysis of the company's working capital efficiency over multiple quarters reveals several notable trends in inventory management, receivables collection, and overall operating cycle duration.

Average Inventory Processing Period

The average inventory processing period exhibits considerable fluctuation over the observed time frame. Starting at 89 days, the period generally trends upward, reaching a peak of 201 days in March 2025. This suggests that inventory turnover slowed significantly at certain periods, notably in early 2025, indicating potential challenges in inventory management or changes in demand patterns. Following the peak, a decline occurs, bringing the period down to 112 days by September 2025. This variability may point to adjustments in operational or supply chain strategies aiming for improved inventory efficiency towards the end of the timeline.

Average Receivable Collection Period

The receivable collection period remains relatively stable, fluctuating modestly between 35 and 54 days. This stability indicates consistent credit and collection policies. Although minor ups and downs are present, there are no extreme deviations, reflecting steady management of accounts receivable. The lowest recorded period appears around March 2024 at 35 days, suggesting improved collection efficiency during that quarter, while peaks around mid-2025 suggest occasional delays in receivables turnover.

Operating Cycle

The operating cycle, which combines the inventory processing and receivable collection periods, mirrors the trends seen in inventory turnover but with smoother progression. It starts at 140 days and generally increases over time, peaking at 248 days in March 2025, which corresponds with the maximum inventory processing period. This indicates an extended cash conversion cycle primarily driven by slower inventory turnover. After the peak, the operating cycle decreases to 160 days by September 2025, suggesting improvements in either inventory or receivables management or both. The overall rise and fall pattern underscore a period of operational adjustment affecting the company's liquidity and working capital efficiency.

In summary, the company experiences notable volatility in inventory turnover, contributing substantially to fluctuations in its operating cycle, while receivables collection remains comparatively stable. The extended cycles observed in early 2025 may signal operational inefficiencies or market conditions impacting inventory movement. The subsequent improvements highlight possible corrective actions undertaken to enhance working capital management towards the end of the period.