Cisco Systems Inc. (NASDAQ:CSCO)

An examination of short-term operating activity ratios reveals several noteworthy trends over the observed period. Generally, a declining trend is apparent in many efficiency metrics, particularly from late 2022 through early 2024, followed by some stabilization and fluctuation. The analysis below details observations for individual ratios and related themes.

Inventory Management

Inventory turnover consistently decreased from 13.25 in October 2020 to a low of 5.30 in July 2025. This indicates a lengthening of the time it takes to sell inventory. Correspondingly, the average inventory processing period increased from 28 days in October 2020 to 69 days in July 2025, suggesting a build-up of inventory levels. A slight recovery in inventory turnover is observed in the most recent periods, but remains significantly lower than initial values.

Receivables Management

Receivables turnover exhibited volatility, initially decreasing from 12.08 to 8.64, then increasing to 12.01 before declining again to 8.94. The average receivable collection period mirrored this trend, increasing from 30 days to a peak of 47 days, then decreasing to 41 days before rising again to 45 days. These fluctuations suggest inconsistencies in the company’s ability to efficiently collect payments from customers. The most recent periods show a slight improvement in collection times.

Payables Management

Payables turnover generally increased from 7.53 to 11.08, indicating the company paid its suppliers more frequently. However, it then decreased to 7.52 in July 2025. The average payables payment period decreased from 48 days to 33 days, then increased to 49 days, reflecting a shortening, then lengthening, of the time taken to pay suppliers. This suggests a shifting strategy in managing supplier relationships.

Overall Operating Cycle & Cash Conversion Cycle

The operating cycle, representing the time to convert raw materials into cash, increased from 58 days to 110 days, peaking in July 2025, before decreasing to 61 days. The cash conversion cycle, which measures the time funds are tied up in operations, followed a similar pattern, increasing from 10 days to 60 days, peaking in July 2025, and then decreasing to 61 days. These increases indicate a longer period of time required to convert investments in inventory and receivables into cash. The recent stabilization suggests potential improvements in working capital management, but the cycle remains extended compared to earlier periods.

Working Capital Turnover

Working capital turnover showed an initial increase from 3.00 to 4.74, then fluctuated between 4.36 and 5.08 before stabilizing. This suggests a generally efficient use of working capital, although the fluctuations indicate some inconsistency in the relationship between sales and working capital levels.

In summary, the observed trends suggest a period of declining operational efficiency, particularly in inventory and receivables management, culminating in a longer operating and cash conversion cycle. While some stabilization is evident in the most recent quarters, the ratios generally remain less favorable than those observed in the earlier part of the analyzed period.

The inventory turnover ratio demonstrates a consistent downward trend over the observed period, beginning in October 2020 and continuing through October 2025. While fluctuations occur, the overall trajectory indicates a decreasing efficiency in converting inventory into sales.

Initial Period (Oct 2020 - Jul 2021)

The inventory turnover ratio begins at 13.25 and gradually declines to 11.50. This initial decrease, though moderate, signals an early shift in inventory management efficiency. Cost of sales exhibits a relatively stable pattern during this timeframe, while inventories show a slight increase.

Subsequent Decline (Oct 2021 - Jan 2023)

A more pronounced decline is observed from October 2021 to January 2023, with the ratio falling from 10.06 to 6.45. This period coincides with a substantial increase in inventory levels, from US$1,832 million to US$3,140 million, while cost of sales remains relatively stable. This suggests a potential buildup of inventory that is not being sold as quickly.

Fluctuations and Continued Downward Trend (Apr 2023 - Oct 2025)

From April 2023 through October 2025, the ratio experiences some volatility, ranging from 6.30 to 5.30. Despite these fluctuations, the overall trend remains downward, ending at 5.30. Inventory levels continue to be elevated, peaking at US$3,920 million in July 2025, and cost of sales shows some increases in later periods, but not enough to offset the inventory buildup and reverse the declining turnover ratio.

Inventory and Cost of Sales Relationship

A consistent pattern emerges where increases in inventory levels generally correlate with decreases in the inventory turnover ratio. While cost of sales fluctuates, it does not consistently increase at a rate sufficient to maintain or improve the turnover ratio as inventory grows. This suggests potential issues with demand forecasting, inventory control, or product obsolescence.

In summary, the observed trend in the inventory turnover ratio indicates a growing inefficiency in inventory management. Further investigation into the factors driving inventory accumulation and the potential for optimizing sales strategies is warranted.

The receivables turnover ratio exhibits fluctuations over the observed period, generally ranging between approximately 7.79 and 12.08. An initial period of relative stability is followed by a noticeable decline, then a period of recovery, and finally, renewed fluctuation. The analysis below details these trends.

Initial Period (Oct 2020 - Jan 2021)

The receivables turnover ratio begins at 12.08 and decreases to 11.15. This initial decline suggests a slight lengthening of the collection period, potentially due to changes in credit terms or customer payment behavior. However, the decrease is relatively small.

Subsequent Decline (May 2021 - Jan 2022)

A more pronounced downward trend is observed from May 2021 through January 2022. The ratio falls from 11.04 to 8.59. This indicates a significant slowdown in the rate at which accounts receivable are being collected. This could be attributable to a variety of factors, including increased sales on credit, more lenient credit policies, or difficulties experienced by customers in meeting their payment obligations. The peak in accounts receivable during this period supports this interpretation.

Recovery and Fluctuation (Apr 2022 - Jul 2023)

From April 2022 to July 2023, the receivables turnover ratio demonstrates a recovery, increasing from 8.92 to 9.74. However, this recovery is not consistent. The ratio fluctuates, reaching 10.76 in April 2023 before decreasing again. This suggests that while collection efforts improved, they were not sustained, and external factors continued to influence the collection cycle.

Recent Trends (Oct 2023 - Jan 2026)

The most recent period shows continued volatility. The ratio increases to 12.01 in October 2023, then declines to 8.94 in January 2026. This suggests ongoing challenges in maintaining a consistent collection rate. The ratio ends the period at 8.94, which is lower than the beginning of the observed period and indicates a potential need for further investigation into collection practices and credit policies.

Overall Observations

The receivables turnover ratio has not exhibited a clear, sustained trend over the entire period. While there have been periods of improvement, the ratio has generally trended downwards from the initial values. The fluctuations suggest sensitivity to external factors and/or changes in internal policies. Further analysis, potentially including days sales outstanding, would be beneficial to provide a more comprehensive understanding of the company’s receivables management.

The accounts payable turnover ratio exhibits fluctuations over the observed period, generally indicating changes in the efficiency with which the company manages its short-term liabilities relative to its cost of sales. An initial decline is followed by a period of relative stability, then a notable increase, before concluding with a downward trend.

Initial Period (Oct 2020 - Jan 2021)

The payables turnover ratio decreased from 7.53 in October 2020 to 9.22 in January 2021. This suggests a slowing in the rate at which the company pays its suppliers during this period, potentially due to strategic decisions to extend payment terms or a decrease in the volume of purchases relative to cost of sales.

Subsequent Stability & Increase (May 2021 - Jan 2023)

Following the initial increase, the ratio experienced a period of relative stability, fluctuating between 7.22 and 8.69. A clear upward trend then emerges, culminating in a ratio of 8.69 in January 2023. This indicates an acceleration in the rate of payment to suppliers, potentially reflecting improved cash flow management or a shift in supplier relationships.

Recent Decline (Apr 2023 - Jan 2026)

From April 2023 onwards, the payables turnover ratio demonstrates a consistent downward trend, decreasing from 8.55 to 7.52 in January 2026. This suggests a return to slower payment practices, which could be attributed to factors such as tighter cash flow, deliberate strategies to preserve liquidity, or changes in the timing of purchases. The lowest value in the observed period is recorded in January 2026.

Overall Trend

The overall pattern reveals a cyclical behavior. The ratio initially increases, stabilizes, then increases again, before ultimately declining. This suggests the company’s payment practices are responsive to changing economic conditions or internal strategic adjustments. The most recent decline warrants further investigation to determine its underlying causes and potential implications for supplier relationships and working capital management.

The fluctuations in the payables turnover ratio should be considered in conjunction with other financial metrics and industry benchmarks to gain a comprehensive understanding of the company’s financial health and operational efficiency.

The working capital turnover ratio exhibits considerable fluctuation over the observed period, generally indicating changes in the efficiency with which working capital is utilized to generate revenue. An initial decline is noted from October 2020 through January 2021, followed by a period of increase and relative stability before a more pronounced shift occurs in later periods.

Initial Period (Oct 2020 - Jan 2021)

The working capital turnover ratio decreased from 3.00 to 2.89. This suggests a slight decrease in the efficiency of working capital utilization during this timeframe. While the decrease is not substantial, it warrants monitoring.

Improvement and Stability (May 2021 - Jan 2023)

From May 2021 to January 2023, the ratio experienced an upward trend, peaking at 4.89 in April 2023. This indicates improved efficiency in utilizing working capital to generate revenue. The ratio remained relatively stable between 3.54 and 4.74 for much of this period, suggesting consistent operational performance. A peak in April 2023 suggests a particularly efficient use of working capital at that time.

Recent Decline (Apr 2023 - Jan 2026)

Beginning in April 2023, a significant and sustained decline in the working capital turnover ratio is observed. The ratio decreased to 5.08 in April 2023, then experienced missing values for the subsequent three quarters. The ratio then resumes a steep decline, reaching negative values by January 2025, and continuing to fluctuate negatively through January 2026. This dramatic shift suggests a substantial decrease in the efficiency of working capital management, potentially linked to changes in working capital components or revenue generation. The negative values indicate that working capital is decreasing at a faster rate than revenue, or that working capital is significantly negative.

The fluctuations in working capital itself, as evidenced by the shift from positive to negative values, likely contribute significantly to the observed changes in the turnover ratio. Further investigation into the components of working capital (accounts receivable, inventory, and accounts payable) is recommended to understand the drivers behind these trends.

The average inventory processing period exhibits a generally increasing trend over the observed timeframe. Initially, the period remained relatively stable, but a noticeable lengthening occurred in later periods. This analysis details the observed patterns and potential implications.

Overall Trend

From October 2020 through January 2023, the average inventory processing period increased from 28 days to 57 days. This represents a substantial lengthening of the time required to convert inventory into sales. The period fluctuated between 57 and 69 days in the subsequent periods, indicating continued elevated processing times. A slight decrease to 53 days was observed in April 2025, but the period increased again to 61 days and 69 days in the following quarters.

Initial Phase (Oct 2020 – Jan 2021)

The average inventory processing period experienced a modest increase from 28 days in October 2020 to 30 days in January 2021. This initial change suggests a slight slowdown in inventory turnover during this period.

Acceleration of Lengthening (May 2021 – Jul 2022)

A more pronounced increase in the average inventory processing period occurred between May 2021 and July 2022. The period rose from 33 days to 49 days, indicating a significant deceleration in the speed at which inventory is sold. This period coincides with a decline in the inventory turnover ratio.

Plateau and Fluctuation (Oct 2022 – Jul 2023)

The period stabilized around 49 to 57 days between October 2022 and July 2023, although remaining at a higher level than earlier periods. This suggests that the factors contributing to the increased processing time were sustained, but not worsening at the same rate.

Recent Performance (Oct 2023 – Jul 2025)

The average inventory processing period has remained elevated, fluctuating between 57 and 69 days. The period reached its highest point of 69 days in July 2025. The slight dip to 53 days in April 2025 did not sustain, with the period increasing in subsequent quarters. This suggests ongoing challenges in efficiently managing inventory.

The consistent increase in the average inventory processing period warrants further investigation. Potential contributing factors could include changes in supply chain dynamics, shifts in product mix towards slower-moving items, or inefficiencies in inventory management practices. Monitoring this metric closely is recommended to identify and address any underlying issues impacting operational efficiency.

The average receivable collection period exhibited fluctuations over the observed timeframe. Initially, the period remained relatively stable before demonstrating increased variability. A general observation suggests a tendency towards longer collection periods in the mid-term, followed by a return towards earlier levels, though with continued oscillations.

Initial Stability & Increase (Oct 2020 - Jul 2021)

The average receivable collection period began at 30 days in October 2020 and remained at 33 days for the subsequent two quarters. A notable increase was then observed, rising to 42 days by July 2021. This suggests a potential slowing in the rate at which receivables were being converted into cash during this period.

Mid-Term Fluctuations (Oct 2021 - Jul 2022)

Following the peak of 42 days, the collection period decreased to 38 days in October 2021, but then increased again to 43 days in January 2022 and 47 days in July 2022. This indicates inconsistent collection efficiency during this six-quarter span. The period remained elevated compared to the initial values.

Return to Earlier Levels & Continued Variability (Oct 2022 - Jul 2025)

From October 2022 through January 2026, the collection period demonstrated a pattern of oscillation. It decreased to 36 days in January 2023, then increased to 38 days in October 2023, decreased to 31 days in October 2024, and increased to 41 days in January 2026. While generally fluctuating between 30 and 45 days, the period did not consistently return to the initial 30-day level. The most recent value, 41 days, suggests a slight lengthening of the collection cycle.

Overall, the average receivable collection period demonstrates a lack of consistent trend. While periods of faster collection are evident, there are also instances of extended collection times. The observed fluctuations warrant further investigation to determine the underlying causes, such as changes in credit policies, customer payment behavior, or the composition of outstanding receivables.

The operating cycle, along with its component parts, exhibits notable fluctuations over the observed period. An overall lengthening of the operating cycle is apparent, though not consistently linear. The analysis below details the trends in the average inventory processing period, average receivable collection period, and the resulting operating cycle.

Average Inventory Processing Period

The average inventory processing period demonstrates a general upward trend. Starting at 28 days in October 2020, it gradually increased to 36 days by October 2021. Further increases were observed, peaking at 69 days in October 2025. Prior to this peak, the period reached 65 days in July 2024, and 62 days in October 2024. A slight decrease to 57 days was noted in January 2025, before the final increase. This suggests a potential slowdown in inventory turnover, possibly due to increased inventory levels or inefficiencies in the supply chain. The period then decreased to 53 days in April 2025, before increasing again.

Average Receivable Collection Period

The average receivable collection period also shows variability. It began at 30 days in October 2020 and increased to 43 days by January 2022. A subsequent decrease to 30 days was observed in October 2022, followed by a rise to 45 days in July 2024. The period then decreased to 31 days in October 2024, before increasing to 43 days in July 2025. This indicates fluctuations in the efficiency of collecting payments from customers. The period ended at 41 days in January 2026.

Operating Cycle

The operating cycle, calculated as the sum of the average inventory processing period and the average receivable collection period, reflects the combined effect of these trends. It increased from 58 days in October 2020 to 83 days in January 2022. A peak of 110 days was reached in July 2024 and again in October 2025. The operating cycle experienced a decrease to 92 days in April 2025, but then increased again. The final value recorded in January 2026 is 110 days. This lengthening operating cycle suggests that the company is taking longer to convert its investments in inventory and receivables into cash, potentially impacting cash flow and requiring increased working capital financing.

The observed increases in both the inventory processing and receivable collection periods contribute to the extended operating cycle. Further investigation into the underlying causes of these increases, such as changes in inventory management practices, credit policies, or customer payment behavior, would be beneficial.

The average payables payment period demonstrates a generally decreasing trend over the observed period, followed by a recent stabilization and slight increase. Initial values indicate a period of 48 days in October 2020, which decreased to a low of 33 days in January 2024, before fluctuating between 36 and 49 days in subsequent quarters.

Overall Trend

From October 2020 through January 2024, a clear downward trend in the average payables payment period is evident. This suggests the company was becoming more efficient in paying its suppliers, potentially benefiting from improved cash management or negotiated payment terms. However, this trend reversed somewhat beginning in April 2024, with the period oscillating and showing a slight upward movement.

Short-Term Fluctuations

The period experienced fluctuations throughout the observation window. A notable increase to 51 days occurred in May 2021, followed by a return to 48 days in July 2021. Similar short-term variations are observed in subsequent periods, indicating potential seasonality or impacts from specific transactions.

Recent Performance (Last 8 Quarters)

The most recent eight quarters (October 2022 – January 2026) show a more stable range, fluctuating between 36 and 46 days. While the period reached a minimum of 33 days in January 2024, it has since remained above 36 days. The latest reported value, 46 days in January 2026, represents a slight increase from the recent average, but remains within the range observed over the past two years.

The observed changes in the average payables payment period warrant further investigation to determine the underlying causes. Factors such as changes in supplier relationships, payment policies, or overall business conditions could be contributing to these trends.

The short-term operating activity of the company, as measured by its cash conversion cycle and component ratios, exhibits notable fluctuations over the observed period. An initial period of relative stability is followed by a trend of increasing cycle times, peaking in late 2023 and early 2024, before showing some signs of moderation. The analysis below details the trends in each component ratio and the resulting cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period demonstrates a consistent upward trend throughout most of the observed timeframe. Starting at 28 days in October 2020, it gradually increased to 69 days by October 2025. This suggests a lengthening of the time required to convert raw materials into finished goods and ultimately sell them. The rate of increase appears to accelerate between January 2022 and January 2024, before stabilizing somewhat in the most recent periods. A slight decrease is observed in the final two periods, but remains elevated compared to the beginning of the period.

Average Receivable Collection Period

The average receivable collection period displays more variability than the inventory processing period. It initially increases from 30 days in October 2020 to 43 days in January 2022, then decreases to 34 days by April 2023. A subsequent increase is observed, reaching 45 days in July 2024, before declining to 41 days in January 2026. This suggests fluctuations in the company’s ability to efficiently collect payments from its customers, potentially influenced by changes in credit policies, customer mix, or economic conditions.

Average Payables Payment Period

The average payables payment period generally remains relatively stable, fluctuating between 33 and 51 days. A decrease is observed from 48 days in October 2020 to a low of 33 days in January 2024. However, the period then increases again, reaching 49 days by October 2025. This indicates a generally consistent approach to managing payments to suppliers, with some minor adjustments over time.

Cash Conversion Cycle

The cash conversion cycle, representing the total time funds are tied up in operations, initially remains relatively low, at 10 days in October 2020. It then increases significantly, peaking at 66 days in July 2024. This increase is primarily driven by the lengthening inventory processing period and, to a lesser extent, fluctuations in the receivable collection period. A slight decrease is observed in the most recent periods, falling to 61 days in October 2025, but remains substantially higher than the initial value. The increasing cycle time suggests a potential need to optimize working capital management to improve liquidity and efficiency. The cycle increases from 10 days to 66 days over the period, indicating a significant deterioration in the speed at which the company converts its investments in resources into cash.

In summary, the company experienced a lengthening of its cash conversion cycle, primarily due to an increase in the time required to process inventory. While the receivable collection period showed some volatility, and the payables payment period remained relatively stable, the overall trend suggests a potential need for improved working capital management.