Cadence Design Systems Inc. (NASDAQ:CDNS)

The financial ratios and periods analyzed reveal several notable trends over the observed quarters. The data predominantly start from late 2020 and extend through mid-2025, illustrating fluctuations in turnover ratios and corresponding periods expressed in days.

Inventory turnover

The inventory turnover ratio shows a downward trend from 4.02 in December 2020 to a low of 1.81 in June 2024, indicating a decreasing frequency of inventory being sold and replaced during the periods. There is a partial recovery afterward, with values rising back to around 3.25 by June 2025. This pattern suggests an increasing duration of holding inventory until mid-2024, followed by improvements in inventory management efficiency toward mid-2025.

Receivables turnover

The receivables turnover ratio exhibits some volatility but generally remains within a range of approximately 6.8 to 10.5. It peaks at 10.46 in June 2024, which indicates a relatively faster collection of receivables during that quarter. The lowest points occur around late 2024 and early 2025. This variation implies inconsistency in credit collection efficiency, with some quarters showing improved collection speed and others slower.

Working capital turnover

The working capital turnover ratio shows a notable increase from 3.94 in December 2020, peaking at 10.61 in March 2024, before sharply declining to approximately 1.75 by June 2025. This suggests initially increasing efficiency in generating sales from working capital, followed by a marked deterioration in this efficiency toward the later quarters.

Average inventory processing period

The average inventory processing period steadily increases from 91 days in December 2020 to a peak of 201 days in June 2024, reflecting a lengthening time to process inventory. This is consistent with the declining inventory turnover ratio during the same period. After this peak, the period improves, decreasing to 112 days by June 2025.

Average receivable collection period

The average number of days to collect receivables varies between 35 to 54 days over the timeline. The shortest collection period is observed at 35 days in March 2024, aligning with the receivables turnover peak. The collection period lengthens again towards 50 days or more in adjacent quarters, showing some inconsistency in collection periods.

Operating cycle

The operating cycle, which combines inventory processing and receivable collection periods, exhibits an increasing trend from 137 days in December 2020 to a high of 248 days in June 2024. Post this peak, the cycle contracts to 160 days by June 2025. This pattern highlights a gradually lengthening operating cycle, indicating slower turnover of inventory and receivables, followed by an improvement.

In summary, the data indicate a period of operational elongation and decreased efficiency in inventory turnover and working capital utilization through mid-2024. Corresponding increases in inventory processing and operating cycle durations underpin these trends. Subsequently, improvements appear in efficiency measures, including turnover ratios and cycle times, during the latter part of the observed period while some volatility remains in receivables management metrics.

Cost of Revenue

The cost of revenue exhibits a fluctuating trend over the analyzed periods. Initially, there is moderate variation around the $70,000 to $85,000 thousand mark in 2020 and early 2021. A noticeable increase occurs starting in early 2022, moving upward from approximately $97,843 thousand in April 2022 to a peak of $219,991 thousand by December 2024. Following this peak, a decline is observed by mid-2025, settling around the $184,000 thousand level. This upward surge in cost of revenue suggests increased production or sales volume, higher input costs, or a combination of these factors, particularly pronounced from 2022 to 2024.

Inventories

Inventory levels display an overall increasing trajectory throughout the period under review. Beginning around $60,575 thousand in March 2020, inventories dip in mid-2020 but then resume rising steadily. By late 2021, inventory levels surpass the $115,000 thousand mark and continue to grow sharply through 2023 and into 2024, reaching a notable high of approximately $293,350 thousand at the end of September 2024. Subsequently, inventories decrease somewhat in late 2024 and into mid-2025, but remain elevated relative to earlier years, suggesting accumulation of stock possibly due to anticipated demand or supply chain strategies.

Inventory Turnover Ratio

Inventory turnover ratio is only available starting end of 2020, with an initial value near 4.02. The ratio gradually declines thereafter, moving down to approximately 2.35 by December 2023, indicating reduced turnover speed. Following this low, some recovery is visible, with the ratio increasing back to around 3.25 by mid-2025. The declining turnover trend until 2023 implies slower movement of inventory relative to sales or usage, which could indicate overstocking or softer demand during that period. The partial improvement after 2023 suggests operational adjustments or stabilization in sales dynamics.

Overall Insights

The interplay between rising inventory levels and fluctuating cost of revenue highlights management challenges in balancing production, procurement, and sales. The marked inventory build-up in 2023 and 2024, combined with a declining inventory turnover ratio, raises concerns about potential overstocking or demand mismatches. The surge in cost of revenue, especially noticeable through 2022 to 2024, may reflect increased raw material costs, expansion activities, or larger sales volumes, but also underscores the need for efficient inventory management to optimize working capital. The partial rebound in inventory turnover by mid-2025 is a positive signal towards improved inventory utilization and potential alignment with market demand.

Revenue Trends

The revenue figures demonstrate a general upward trend over the observed periods. Starting from approximately $618 million in March 2020, revenue showed consistent growth, reaching over $1 billion in early 2023. There is some volatility around the mid-2022 to late 2023 periods, with fluctuations between approximately $857 million and $1.07 billion. From early 2024 onwards, a significant increase is observed, with revenue peaking at about $1.36 billion in the third quarter of 2024 before a slight dip and subsequent stabilization around $1.27 billion by mid-2025. This suggests robust sales expansion with some seasonal or market-driven variability.

Receivables, Net

Net receivables exhibit an overall increasing pattern aligned with rising revenue levels, beginning at roughly $284 million in March 2020 and climbing to over $670 million by mid-2025. Notable increments are seen in the final quarters of 2022 and early 2024, where receivables sharply increase to nearly $487 million and $565 million respectively. However, certain quarters show declines or stabilization, for instance in mid-2023 and early 2024, signaling possible collection improvements or changes in credit policy. These fluctuations reflect dynamic credit management in response to sales growth.

Receivables Turnover Ratio

Receivables turnover data is available starting from December 2020, showing considerable variability over time. Initial values range between 7.2 and 9.1, indicating moderately efficient receivables collection cycles. Through 2021 and into 2022, the turnover ratio fluctuates mostly between 7.3 and 8.8, reflecting a relatively stable collection efficiency. In 2023 and 2024, larger swings are observed, with a peak nearing 10.5 in mid-2024, suggesting periods of quicker receivable conversion into cash, followed by declines to around 6.8–7.6. Overall, these changes indicate responsiveness to business conditions affecting cash flow cycles and possibly credit policies adjusting to sales and receivables growth.

Overall Analysis

The company shows a consistent expansion in revenue across the evaluated quarters, supported by a corresponding increase in net receivables. Despite growth, the variability in receivables turnover indicates fluctuating efficiency in collections, potentially influenced by changes in customer payment behavior or internal credit management strategies. The alignment of receivables trends with revenue suggests a proportional credit extension consistent with sales growth. The observed fluctuations in turnover ratios highlight the need for continued focus on optimizing working capital management to sustain financial health amid expansion.

Working Capital

The working capital exhibited a generally upward trend from March 2020 through the end of 2021, rising from approximately $387 million to about $745 million. However, starting in early 2022, it experienced considerable volatility, with values decreasing to around $359 million by the end of 2022, followed by fluctuations throughout 2023. Notably, a significant surge occurred in the first and second quarters of 2024, where working capital sharply increased to approximately $2.4 billion and continued rising to nearly $2.7 billion by mid-2025, indicating a substantial improvement in short-term liquidity and operational efficiency in the most recent periods.

Revenue

Revenue displayed a consistent upward trajectory with periodic fluctuations. From March 2020 to December 2021, revenue increased steadily from about $618 million to approximately $773 million. In 2022, revenue showed strong performance, peaking at around $902 million in October, followed by minor variations thereafter. The upward trend continued into 2023 and 2024, with revenue reaching a peak of around $1.36 billion in mid-2025. This overall growth indicates sustained demand and successful sales performance over the analyzed timeframe.

Working Capital Turnover

Working capital turnover ratios are available from December 2020 onward and reflect varying efficiency in utilizing working capital to generate revenue. Early values ranged from 3.94 to 5.45, indicating moderate efficiency. From mid-2021 through late 2023, the ratio saw an increasing trend, fluctuating between approximately 4.01 and peaking at 10.61, suggesting periods of improved turnover and operational optimization. However, starting in 2024, the turnover ratio declined sharply to values between about 1.75 and 1.87 by mid-2025, coinciding with the large increase in working capital. This decline suggests that although working capital expanded significantly, its utilization relative to revenue generation became less efficient during these latest quarters.

Summary of Trends

Overall, the financial data reveal a growing company with steadily increasing revenue over the examined periods. The initially stable and moderately increasing working capital reflects sound short-term financial management, but the sharp rise in working capital in recent periods, accompanied by a decrease in turnover ratio, indicates possible accumulation of current assets or slower current liability management. The decrease in working capital turnover during 2024 and 2025 implies that the company is generating less revenue per dollar of working capital, which may warrant further analysis to assess liquidity management or shifts in operational strategy. Nonetheless, the robust revenue growth throughout the period confirms the company's expanding market presence and sales effectiveness.

Inventory Turnover

The inventory turnover ratio shows a declining trend starting from 4.02 in the first reported quarter of 2020 and reaching a low point of 1.81 by mid-2024. After this low, there is a gradual recovery observed, with the ratio rising to 3.25 by mid-2025. This indicates that the company’s efficiency in managing and selling inventory decreased significantly over the earlier periods, but improved somewhat in the later quarters.

Average Inventory Processing Period

The average inventory processing period, expressed in days, exhibits an opposite trend to that of inventory turnover. Initially, the period begins at 91 days, then steadily increases to a peak of 201 days around mid-2024. Following this peak, the processing period decreases to 112 days by mid-2025. The rising trend in the processing period correlates with the declining inventory turnover, reflecting slower inventory movement and longer holding periods. The subsequent reduction post-peak suggests efforts to improve inventory management and turnover efficiency.

Trend Summary

Overall, the data reveals that the company experienced a period of reduced inventory efficiency characterized by lower turnover rates and longer inventory holding times through early 2024. This was followed by signs of operational improvement in inventory management towards the latter part of the dataset. These trends may reflect changing market conditions, supply chain impacts, or internal strategic adjustments affecting inventory handling and sales velocity over the observed periods.

Receivables Turnover

The receivables turnover ratio exhibits some fluctuations across the periods analyzed. Beginning with a ratio of 7.93, the metric declines slightly to 7.21 and 7.41 in subsequent quarters, before rising significantly to a peak of 10.46 in the quarter ending June 30, 2024. This peak is followed by a noticeable decline to a low of 6.82 in September 2024, indicating intermittent variability in the efficiency of collecting receivables. Toward the end of the timeline, the ratio stabilizes between 7.59 and 8.39.

Average Receivable Collection Period

The average collection period in days moves inversely to the turnover ratio, as expected. It starts near 46 days and generally trends upward to a high of 54 days in March 2025, indicating a lengthening of the time to collect receivables during this interval. However, significant variability occurs, with notable decreases to a low of 35 days in June 2024, which corresponds to the peak in receivables turnover. The collection period then fluctuates, ultimately settling between 43 and 48 days toward the end of the period. This pattern signals periodic changes in working capital efficiency.

Overall Observations

The data indicates that the company's receivables management experiences cyclical shifts. Periods with high receivables turnover correspond with lower average collection days, reflecting efficient collection processes. Conversely, lower turnover ratios correspond to extended collection periods. This oscillation suggests responsiveness to operational or market factors influencing receivables. No consistent upward or downward trend is evident, rather a pattern of variability with intermittent peaks and troughs in both metrics.

Average Inventory Processing Period

The average inventory processing period demonstrates an overall increasing trend from 91 days in early 2021 to a peak of 201 days in mid-2024. After this peak, the period declines back down to 112 days by mid-2025. This pattern suggests that inventory turnover slowed progressively over the initial quarters, reaching a maximum duration where inventory remained in stock, before improving significantly towards the end of the observed period.

Average Receivable Collection Period

The average receivable collection period shows moderate fluctuations throughout the timeframe. Beginning around 46 days in early 2021, it exhibits some variation with values ranging mostly between the high 30s and low 50s. No clear long-term upward or downward trend is evident, but occasional spikes occur, notably a rise to 54 days in late 2024. The variations suggest fluctuating efficiency in collecting receivables without sizeable structural changes across periods.

Operating Cycle

The operating cycle, which combines inventory and receivables periods, reflects a rising trend from 137 days in early 2021 to a maximum of 248 days in mid-2024. Following this peak, the cycle contracts to approximately 160 days by mid-2025. This indicates a lengthening of the total cash conversion period initially, likely driven mainly by the extended inventory processing time, followed by a notable recovery towards a shorter operating cycle at the end of the period under review.