Diamondback Energy Inc. (NASDAQ:FANG)

The financial ratios and operational metrics over the observed periods reveal several notable trends in the company's operational efficiency and working capital management.

Inventory Turnover

Inventory turnover ratio displays a fluctuating but generally upward trend. Starting from a high level in early 2018 above 150 times, it decreased sharply at the end of 2018 to mid-50s, then gradually increased again through 2019 and 2020. In 2021 and 2022, the ratio recovered strongly, reaching peaks above 160 times, indicative of improving inventory management and quicker movement of inventory over time.

Receivables Turnover

This ratio shows variability but with overall resilience. It experienced a high point in early 2020, surpassing 17 times, followed by a decline through late 2020 and early 2021, indicating slower collection periods. However, subsequent quarters reflect a modest recovery, with ratios moving back towards double-digit values by late 2022, signifying relatively efficient collection of receivables.

Payables Turnover

The payables turnover ratio exhibits pronounced volatility. Initially consistent around the low 20s ratio, it decreased steadily in 2018-2019, reaching lows around 14 times, then surged dramatically in late 2020 and throughout 2021 into early 2022, peaking at extraordinary levels above 260 times before retreating somewhat in the most recent quarter. This suggests significant changes in supplier payment practices, potentially indicating faster payments or shifts in credit terms.

Working Capital Turnover

Data for working capital turnover is largely sparse, with a notable outlier in early 2022 reaching an extremely high ratio of over 840 times. The absence of consistent data limits comprehensive analysis, but the outlier hints at an unusual improvement or one-off event affecting working capital utilization during that period.

Average Inventory Processing Period

The number of days required to process inventory remains generally low, mostly ranging between 2 and 6 days. There is a slight increasing trend in some quarters in 2018 and again early 2021 but overall it remains stable and indicative of efficient inventory turnover consistent with the high inventory turnover ratios observed.

Average Receivable Collection Period

This metric demonstrates cyclical fluctuations, with collection periods generally improving (shortening) during 2020, reaching lows around 21 days, then lengthening again in 2021 to over 60 days at one point before decreasing toward under 30 days by late 2022. These shifts reflect variations in credit policies or customer payment behaviors over time.

Operating Cycle

The operating cycle duration, representing the total time from inventory acquisition to receivables collection, generally aligns with trends in inventory and receivable periods. It decreased notably in 2020, correlating with shorter inventory and receivables periods, then lengthened in 2021 before improving again in 2022, reaching 28 days at the latest point. This pattern suggests cycles of operational tightening and relaxation.

Average Payables Payment Period

The average period for paying suppliers shows a trend of shortening over the course of the timeline. From around 16-26 days during 2018 and 2019, it dropped dramatically in 2021 to a range of 1 to 9 days, and although slightly increasing towards 5 days in late 2022, it remains low relative to earlier years. This indicates a strategic move towards quicker payments or a reduction in payable credit terms.

Cash Conversion Cycle

The cash conversion cycle, reflecting the net number of days funds are tied up in the operating process, exhibits significant variability. It decreased substantially in 2020 to near zero or single-digit days, signaling highly efficient cash management during that year. 2021 saw a notable increase, peaking over 60 days, followed by reductions through 2022 down to 23 days, indicative of efforts to improve liquidity and working capital efficiency.

Overall, the data depict a company adapting its working capital management dynamically in response to operational requirements and likely external factors. Inventory and receivable management show cyclical improvements and deteriorations, while payables management reflects a marked acceleration in payments during recent years. The cash conversion cycle's fluctuations underscore shifts in liquidity management strategies aimed at optimizing the balance between cash inflows and outflows. The observed patterns suggest ongoing active financial management with an emphasis on improving operational efficiency and cash flow performance.

Revenue from contracts with customers

Revenue exhibited a general upward trend from March 2018 to June 2022, starting at 467 million US dollars and peaking at 2752 million by mid-2022. There were some fluctuations, notably a decline during early 2020, coinciding with a drop from 883 million in March 2020 to 412 million in June 2020, reflecting a significant short-term contraction. However, this was followed by a strong recovery and sustained growth through 2021 and into 2022.

Inventories

Inventories increased gradually over the observed period, moving from 9 million US dollars in early 2018 to a higher level of around 59 million by September 2022. The inventory levels showed some variability but generally trended upwards, indicating increased stockholding possibly to meet the growing revenue demand. Notable increments were observed around 2021 and 2022, where inventory values rose from 52 million to above 60 million.

Inventory turnover ratio

The inventory turnover ratio experienced significant volatility through the period. Initially, the ratio was very high (158.49 in March 2018), then it declined sharply by the end of 2018, reaching lows around 56.69. Following this, the turnover ratio saw a recovery phase with fluctuations, improving significantly after mid-2021, and peaking again above 160 in mid-2022. The pattern suggests operational efficiency initially reduced but later improved, particularly in recent quarters, with higher turnover indicating faster inventory movement relative to sales.

Overall Trends and Insights

The data illustrates recovery and growth after a pronounced dip in early 2020, likely associated with external disruptions. Revenue growth was strong post-recovery, suggesting effective market demand capture or improved pricing strategies. Inventory levels grew steadily, reflecting scaling operations or cautious stock management. Inventory turnover demonstrated an initial decline followed by improvement, signalling efforts to enhance inventory efficiency amid fluctuating sales volumes. The correlation between rising revenue and improved turnover in the latest periods may indicate enhanced operational control and better alignment of inventory with sales.

The analysis of the quarterly financial data reveals notable trends in revenue, accounts receivable, and receivables turnover ratios over the observed periods.

Revenue from contracts with customers

The revenue shows a general upward trajectory from the first quarter of 2018 through the third quarter of 2022. Beginning at $467 million in March 2018, revenue steadily increased, reaching a peak of $2,752 million in June 2022 before a slight decrease to $2,417 million in September 2022. The growth is particularly pronounced from early 2021 onward, suggesting stronger sales performance during this period. Notably, a decline is observed during the early quarters of 2020, coinciding with the onset of the global pandemic, but a recovery and substantial growth followed.

Accounts receivable, oil and natural gas sales, net

Accounts receivable balances increase over time, starting at $165 million in March 2018 and rising to a peak of $966 million in March 2022 before declining to $669 million in September 2022. The increase in receivables generally aligns with the growth in revenue, indicating higher sales on credit terms. The reduction in receivables in the latter quarters of 2022 may reflect improved collections or a change in credit policy. A notable dip in accounts receivable occurs in the early quarters of 2020, mirroring the dip in revenue during the same period.

Receivables turnover ratio

The receivables turnover ratio fluctuates significantly across quarters, ranging from a low of 5.73 in March 2021 to a high of 17.46 in March 2020. Lower turnover ratios in 2021 suggest a slower collection period, potentially due to extended credit terms or collection challenges. Conversely, higher turnover ratios in early 2020 and several periods in 2022 indicate faster collection of receivables. The overall variation in this metric may reflect changing credit and collection dynamics influenced by external market conditions and internal policies.

In summary, revenue exhibits robust growth with some volatility linked to global economic factors. Accounts receivable increases in tandem with revenue but shows signs of improved collection efficiency toward the end of the examined period. The receivables turnover ratio’s variability underscores fluctuating collection effectiveness, with some periods indicating slower turnover possibly due to extended credit terms or market disruptions.

The quarterly financial data reveals notable trends in revenue, accounts payable, and payables turnover, reflecting changes in operational scale and vendor relationships over the observed periods.

Revenue from Contracts with Customers

The revenue demonstrates a general upward trajectory from March 2018 through June 2022, increasing from $467 million to a peak of $2,752 million. This indicates substantial growth in sales or service income over the period. There are fluctuations within quarters; for example, a decline is observed around March and June 2020, likely reflecting external challenges during that time frame. Post-2020, revenue resumes strong growth, reaching its highest recorded levels in 2022 before showing a slight decrease in September 2022.

Accounts Payable, Trade

Accounts payable exhibit variability without a clear long-term trend correlated directly with revenue growth. Starting at $63 million in March 2018, the figure peaks at $245 million in March 2020, followed by a pronounced decline through the latter half of 2020, dropping to as low as $21 million in March 2021. Subsequently, there is a gradual increase through 2022, reaching $139 million by September 2022. The erratic pattern suggests fluctuating payment cycles or changes in supplier contract terms rather than stable scaling aligned strictly with revenue.

Payables Turnover Ratio

The payables turnover ratio shows a complex pattern of decline and sharp growth over the quarters. Initially stable around 22 in 2018, the ratio declines to around 14 by mid-2019, then fluctuates with a notable spike from late 2020 onward, reaching extraordinarily high levels exceeding 200 in early 2021. Such high ratios indicate very rapid payments to suppliers in those periods, which may reflect changes in working capital management or payment strategies. After peaking, the turnover ratio declines gradually toward 69 by September 2022, still above earlier levels, suggesting a steady but cautious normalization of payment terms or cash flow management strategy adjustments.

In summary, the financial data highlights robust revenue growth accompanied by irregular accounts payable trends and significant fluctuations in payables turnover. The sharp spikes in turnover ratios during 2021 suggest strategic shifts in supplier payments, possibly aimed at optimizing liquidity or credit terms amid changing market conditions. The divergence between revenue growth and payable balances indicates a nuanced management of liabilities relative to operating scale. Overall, the data reflects a dynamic financial environment with aggressive expansion tempered by variable supplier payment practices.

The financial analysis reveals several notable trends and patterns over the reported periods.

Working Capital

Working capital exhibits significant fluctuations throughout the periods. Starting with negative values in early 2018, the working capital briefly turns positive at the end of the third quarter of 2018 but quickly reverts to negative territory. From 2019 through 2022, the working capital remains predominantly negative, with some periods showing substantial declines, such as in the first quarter of 2021 where it reaches a low of approximately -1017 million USD. The trend suggests persistent liquidity challenges or significant short-term liabilities exceeding current assets across most quarters.

Revenue from Contracts with Customers

Revenue demonstrates a strong upward trajectory over the observed timeframe. Beginning at 467 million USD in the first quarter of 2018, revenue generally increases steadily, peaking around 2752 million USD in the second quarter of 2022 before slightly declining in the following quarter. This consistent growth over the years suggests an expanding operational scale or improved sales performance, with a marked acceleration in 2021 and 2022 periods.

Working Capital Turnover

The working capital turnover ratio data is sparse and incomplete, with only a few recorded points. A notably high ratio of approximately 25.65 is observed in the third quarter of 2018, and an exceptionally high figure of 843.38 appears in the period near mid-2022, though other periods lack corresponding data. The irregular and incomplete nature of this ratio limits the capacity to draw reliable conclusions; however, extremely high values may indicate efficient use of working capital relative to revenue in those specific periods or may reflect data inconsistencies associated with the volatile working capital values.

In summary, the company’s revenue exhibits robust growth across the periods, indicating an expanding business or increasing market demand. Conversely, working capital remains negative for most periods, highlighting potential liquidity constraints or operational financing strategies reliant on short-term liabilities. The available working capital turnover ratios suggest occasional efficient utilization of working capital but are insufficient to form a comprehensive view due to data gaps and volatility.

Inventory Turnover Ratio

The inventory turnover ratio exhibits notable fluctuations over the analyzed periods. The ratio starts at a high level of 158.49 in the first quarter of 2018, followed by a moderate decline and stabilization around 125 to 128 in the subsequent two quarters. A significant drop to 56.69 occurs in the final quarter of 2018, indicating a sharp decrease in how frequently inventory was sold or used during that time. Through 2019, the ratio gradually recovers, reaching pre-drop levels by the end of the year at 105.05.

During 2020, the turnover ratio declines again steadily from 109.11 to 83.52, which could suggest slower inventory movement or increased inventory levels. However, a rising trend resumes in 2021, with the ratio moving upward from 58.56 in Q1 to 108.82 in Q4, and continuing strongly into 2022, culminating at 162.19 in the third quarter of 2022, surpassing the earlier highs. This rebound suggests improved efficiency in inventory management or increased sales activity.

Average Inventory Processing Period (days)

The average inventory processing period inversely corresponds to the inventory turnover ratio, with lower days indicating faster inventory turnover. Initially, the processing period is very short, around 2 to 3 days per quarter in early 2018, then it doubles to 6 days by the last quarter of 2018, reflecting the sharp dip in turnover ratio during that quarter.

Throughout 2019 and 2020, the processing period fluctuates moderately between 3 and 6 days, indicating relatively stable but somewhat slower inventory processing times compared to early 2018. The average days fluctuate around 4 to 6 days for most of this period.

Starting in 2021 and continuing through 2022, the processing period steadily decreases back to around 2 to 3 days, mirroring the increase in inventory turnover ratio during this timeframe. This consistent reduction in processing time suggests improved inventory handling and possibly increased demand or operational efficiency.

Overall Observations

The data highlights periods of volatility in inventory management efficiency, with significant disruptions noted at the end of 2018 and during 2020. Despite these disruptions, a marked recovery and improvement in turnover efficiency is notable from early 2021 onward.

The inverse relationship between inventory turnover and average inventory processing period is clear, reflecting typical inventory dynamics where faster turnover corresponds to shorter processing periods. The recent trend towards higher turnover and shorter processing periods suggests enhanced operational performance or favorable market conditions influencing inventory management.

The analysis of the receivables turnover ratio and the average receivable collection period over the examined quarters reveals notable fluctuations and cyclical patterns in the company's credit management and collection efficiency.

Receivables Turnover Ratio

The ratio exhibits a general variability across the timeline. Initially, from early 2018 to the end of that year, the ratio shows a moderate decline from 8.6 to a low of 7.18, indicating a slight decrease in the efficiency of receivables collection.

Subsequently, from early 2019 through early 2020, the ratio increases significantly, peaking at 17.46 in March 2020. This sharp rise suggests a substantial improvement in collecting receivables more rapidly during that period. However, this peak is followed by a declining trend towards the end of 2020, falling to 9.81.

In 2021, the ratio decreases further, reaching its lowest point of 5.73 in March, indicating slower collection relative to prior periods. A recovery phase is observed afterward, with the ratio climbing back to 11.28 by December 2021.

During 2022, the turnover ratio shows an inconsistent pattern, with volumes moving between 8.24 and 14.3, suggesting variability in collection efficiency but with an overall trend towards improvement by the third quarter.

Average Receivable Collection Period

This metric inversely mirrors the receivables turnover ratio, measuring the average time in days taken to collect receivables.

In 2018, the collection period ranges between 35 to 52 days, hitting a high at year-end, which coincides with the aforementioned dip in turnover ratio, reflecting slower collections.

From early 2019 to early 2020, this period shortens significantly, reaching a low of 21 days in March 2020, aligning with the peak receivables turnover. This demonstrates enhanced efficiency in the collection process during this span.

However, following this, the collection days extend to 37 by the end of 2020, showing a gradual slowdown in collection speed, which partially correlates with the decline in the turnover ratio.

In the first quarter of 2021, a pronounced increase in collection days occurs, rising to 64, the highest in the reported periods. This indicates a notable worsening in receivables management or external factors impacting collections.

Subsequent quarters in 2021 and 2022 reveal a reduction in collection days back to the mid-20s to 40s range, suggesting partial normalization and recovery of collection practices.

Overall, the company experienced periods of both improved and diminished receivable collection efficiency. The peak efficiency occurred around early 2020, possibly impacted by external economic conditions or internal operational changes. A pronounced slowdown in collection occurred in early 2021, followed by a rebound in efficiency through 2022. Monitoring these metrics continues to be critical for assessing liquidity and operational effectiveness in credit management.

Average Inventory Processing Period

The average inventory processing period began at 2 days in early 2018, increasing to a peak of 6 days by the end of 2018 and the first quarter of 2019. This was followed by a gradual reduction, stabilizing at around 3 to 4 days through 2020 and most of 2021, with a slight uptick to 6 days in early 2021. By the last quarters of 2021 and into 2022, it declined steadily to 2 days by September 2022. This pattern indicates initial inefficiencies or changes in inventory turnover that improved over time, culminating in a more efficient inventory management process in recent periods.

Average Receivable Collection Period

The receivable collection period showed considerable fluctuations over the observed timeframe. Starting at 42 days in early 2018, it generally decreased to a low of 35 days by the third quarter of 2018 but then spiked to over 50 days around the end of 2018 and early 2019. Subsequently, the period fluctuated between mid-20s to mid-40s, with a notable peak of 64 days in the first quarter of 2021. After this peak, the period gradually decreased again to 26 days by the third quarter of 2022. These variations suggest periods of both efficient and delayed collections, with some instances of extended collection times that may reflect changing credit policies or customer payment behaviors.

Operating Cycle

The operating cycle closely followed the trends observed in the inventory processing and receivable collection periods. Beginning at 44 days in early 2018, it increased to a high of 70 days in the first quarter of 2021, reflecting elongated operating processes during that period. After the peak, the operating cycle steadily decreased to 28 days by the third quarter of 2022, indicating improved overall operational efficiency. This reduction suggests enhanced management of inventory turnover and receivables collection in the later periods.

Overall Insights

The data reflects a period of operational challenges up to early 2019 and a pronounced inefficiency in the operating cycle and receivables collection in early 2021. However, subsequent quarters demonstrate consistent improvements in managing inventory turnover and receivables, resulting in a shorter operating cycle by mid-2022. These trends may suggest successful operational adjustments, tighter credit controls, or improved market conditions contributing to more efficient asset management.

The payables turnover ratio and the average payables payment period present notable trends over the observed quarters. The payables turnover ratio exhibits considerable fluctuation with periods of stability interrupted by sharp spikes and declines. Initially, the ratio remains fairly stable around the low twenties from early 2018 until late 2018, followed by a decline through the first half of 2019. This ratio then increases again markedly towards the end of 2019, peaking close to 39 in the last quarter of 2020.

A striking development occurs in 2021 with an extreme surge in the payables turnover ratio, reaching a peak well above 260 in the third quarter, followed by a gradual but sustained decline through 2022, although it remains elevated relative to earlier years.

Conversely, the average payables payment period shows an inverse pattern to the turnover ratio, which is consistent with financial theory. During the early period from 2018 through mid-2019, the average payment period increases slightly, reaching a high of about 26 days. This period is followed by a reduction to about 9 days towards the end of 2020 and remaining stable at this lower level through most of 2021.

In 2021, a dramatic shortening of the payment period occurs, dropping to around 1-3 days, which corresponds to the extraordinarily high payables turnover recorded over the same timeframe. This unusually short payment period suggests a significant change in payment policies or operational practices during this period. Throughout 2022, the average payment period increases somewhat again but remains much lower than the earlier years, stabilizing around 3 to 5 days.

Payables Turnover Ratio

Demonstrates a cyclical pattern with notable spikes in late 2020 and especially in 2021, indicating quicker payments or reduced payables relative to purchases during those periods.

Average Payables Payment Period

Displays an overall declining trend with a substantial reduction from over 20 days to single digits in late 2020 and an extraordinary drop in 2021, implying accelerated payable settlements.

Correlation of Metrics

The inverse relationship between turnover ratio and payment period aligns with expected behavior, reflecting changes in payment efficiency and working capital management strategies across the analyzed periods.

Operational Insight

The significant variations in 2021 may suggest strategic shifts in payment processes, possibly aimed at improving supplier relations or capital management. Sustained elevated turnover and shortened payment periods into 2022 indicate a maintained focus on prompt payable settlements.

The analysis of the financial operating cycle over the examined periods reveals notable variability and several distinct trends across the four key liquidity and operational metrics: average inventory processing period, average receivable collection period, average payables payment period, and cash conversion cycle.

Average Inventory Processing Period

This metric fluctuated modestly between 2 and 6 days. Initially, it remained stable around 2 to 3 days but peaked at 6 days during the end of 2018 and early 2019. Following that, the period generally stabilized in the range of 3 to 4 days, with a brief return to 6 days in early 2021. Towards the last recorded quarters, the metric declined closer to 2 days, indicating an improvement in inventory turnover and processing efficiency.

Average Receivable Collection Period

The receivable collection period demonstrated greater volatility. It started around 35 to 42 days and spiked to 51-52 days by late 2018 and early 2019. Subsequently, it decreased substantially to the low twenties in mid-2020 but surged again to over 60 days by the first quarter of 2021. Thereafter, it showed a downward trend but remained elevated compared to the initial periods, fluctuating between 26 and 49 days. This variation suggests periods of both strain and improvement in the company's credit collection efficiency.

Average Payables Payment Period

The payables payment period varied significantly throughout the timeline. It was relatively steady at around 16 to 26 days during the early periods, increasing slightly by 2019. However, from late 2020 onward, there was a stark reduction to single-digit days, and in some quarters, as low as 1 to 5 days. This decline implies the company accelerated its payments to suppliers, possibly reflecting changes in working capital management strategies or supplier agreements.

Cash Conversion Cycle

The cash conversion cycle (CCC), which integrates the above metrics, exhibited considerable fluctuations. Initially, it ranged from 19 to 35 days but improved dramatically around mid-2020 where it dropped briefly to as low as 1 day, indicating enhanced liquidity and operational efficiency during that period. However, the CCC spiked sharply again in early 2021 to over 60 days, aligning with the increase in receivable days. In the trailing quarters, the CCC gradually decreased to the low twenties, reflecting a recovery toward more efficient cash management.

Overall, the financial operating cycle reveals periods of operational challenges interspersed with improvements. The inventory processing period remained relatively controlled with minor fluctuations, while the receivable collection period showed more pronounced volatility, contributing substantially to CCC changes. The marked reduction in payables payment days in late periods suggests a strategic shift towards quicker supplier payments. The cash conversion cycle's fluctuations highlight underlying shifts in the interplay between managing payables, receivables, and inventory over the periods reviewed.