Etsy Inc. (NASDAQ:ETSY)

The analysis of the financial ratios over the observed periods reveals notable trends in receivables, payables, and working capital management.

Receivables Turnover

The receivables turnover ratio demonstrates a general increasing trend from 14.87 in March 2018 to a peak of 119.9 in June 2022, before slightly decreasing to 113.76 in September 2022. This indicates an improving efficiency in the collection of receivables over time, suggesting that the company has accelerated its ability to convert credit sales into cash.

Average Receivable Collection Period

Consistent with the rising receivables turnover, the average collection period declined markedly from 25 days in early 2018 to an efficient 3 days by mid-2022, maintaining that level through September 2022. This reduction in days reflects increasingly faster collection of outstanding receivables, which positively impacts cash flow.

Payables Turnover

The payables turnover ratio shows considerable volatility across the periods. It decreased from 19.47 in March 2018 to a low point near 7.19 by December 2018, then increased again with fluctuations, reaching a high of 44.61 in September 2021, followed by some decline yet maintaining elevated levels around 43 by mid to late 2022. These fluctuations suggest changing patterns in the company's payment practices to suppliers, with phases of faster payments (high turnover) interspersed with slower payments.

Average Payables Payment Period

This metric mirrors the payables turnover trends inversely. The payment period increased significantly, peaking at 51 days in December 2018, indicating extended time to pay suppliers during that period. Thereafter, it generally decreased, reaching shorter payment periods of approximately 8 to 9 days by 2022. This shift suggests a strategic move towards quicker settlement of obligations to suppliers in recent years.

Working Capital Turnover

The working capital turnover ratio showed moderate growth from 0.78 in March 2018 to approximately 1.4 in March 2021, indicating improved efficiency in the use of working capital. In subsequent periods, it surged dramatically to as high as 3.68 in March 2022 before slightly declining to around 2.9 by September 2022. This marked increase points to better utilization of working capital to generate revenue, possibly reflecting enhanced operational efficiency or changes in capital structure and management.

Overall, the financial data exhibits improvements in receivables management and working capital efficiency, with a clear trend toward faster collection periods and better turnover ratios. Payables management has been more variable but shows a recent trend toward quicker payment cycles. These patterns imply a strengthening cash conversion cycle and potentially improved liquidity management over time.

The revenue displayed a consistent upward trend over the observed periods, with notable seasonal fluctuations. From March 2018 to December 2019, revenue increased steadily, culminating in a significant peak at the end of 2019. In 2020, this growth accelerated markedly, especially evident in the sharp rise during the second quarter, followed by a continuing increase through the year and into 2021. Although there was some variability in early 2022, revenue maintained a generally high level compared to earlier years.

Accounts receivable, net of expected credit losses, exhibited more volatility relative to revenue. Initial values from 2018 showed moderate fluctuations with a decrease by the end of 2018. In 2019 and early 2020, accounts receivable remained relatively stable with slight increases. However, from mid-2020 onwards, there was a clear upward trend in receivables, peaking sporadically in late 2021 and early 2022. Despite occasional decreases, the general direction suggests an increase in outstanding receivables over time.

The receivables turnover ratio, indicating the efficiency of collecting receivables, showed an overall increase with some variation between quarters. Early values in 2018 ranged between approximately 14.8 and 16.2, then rose sharply by the end of 2018, reaching values above 50. The trend continued upward through 2019 and 2020, demonstrating improved collection efficiency. This increase persisted into 2021 and 2022, with turnover values frequently exceeding 80 and peaking above 110, suggesting stronger management of accounts receivable despite the rising absolute receivables balance.

Revenue

Steadily increased from 2018 through 2022, with notable peaks at end of each year and a pronounced growth surge starting 2020.

Accounts Receivable

Displayed volatility but generally trended upward from mid-2020 onward, indicating growing outstanding receivables.

Receivables Turnover Ratio

Improved significantly over the period, indicating enhanced efficiency in collecting receivables, with turnover ratios rising from below 20 to above 100.

In summary, the company demonstrated strong revenue growth alongside increasing accounts receivable. The rising receivables turnover ratio suggests that despite growth in outstanding receivables, the company has become more effective in its collections process, maintaining operational efficiency as scale expanded.

The financial data demonstrates notable trends in cost of revenue, accounts payable, and payables turnover ratios over the indicated periods.

Cost of Revenue

The cost of revenue generally exhibits an upward trend across the examined quarters. Starting at approximately 41.3 million USD in early 2018, it gradually increased with fluctuations, reaching a peak of about 209.0 million USD by the end of 2021. This figure then showed a minor decline and relative stabilization around the 171-174 million USD range by the third quarter of 2022. The increase over the observed period reflects an expansion in operational scale or increased costs associated with revenue generation.

Accounts Payable

Accounts payable figures display considerable volatility throughout the periods. Initially, the value was around 8.1 million USD in early 2018, rising and falling in irregular patterns, with multiple peaks and troughs. A significant increase is noted at the end of 2020, with accounts payable reaching approximately 40.9 million USD, followed by a sharp decline and subsequent fluctuations hovering between approximately 13.4 million USD to 28.0 million USD through 2021 and into 2022. This variability suggests changes in the company's credit terms with suppliers, purchasing cycles, or strategic payment timing.

Payables Turnover Ratio

The payables turnover ratio shows marked fluctuations over the periods examined. Early values begin at a moderate level around 19.47 in the first quarter of 2018, decreasing significantly to lows near 7.19 by the end of 2018. The ratio then rises and falls in subsequent periods, with sharp increases noted in 2020 and 2021, peaking dramatically at 44.61 in late 2021 before slightly declining but remaining high through 2022. High turnover ratios indicate faster payment to suppliers or reduced reliance on payables, whereas lower values suggest extended payment periods. The periods of elevated turnover in later years imply a strategic shift towards more rapid settlement of obligations or changes in working capital management.

Overall, the data suggests growth in revenue-related activities accompanied by dynamic management of payables. The increase in cost of revenue aligns with business expansion or enhanced cost inputs, while the fluctuating payables and turnover ratios point to adaptive financial strategies regarding supplier payments and liquidity management over time.

The analysis of the quarterly financial data reveals several key trends regarding the working capital, revenue, and working capital turnover ratio over the period under review.

Working Capital

Working capital values exhibit a fluctuating pattern, starting at approximately $598 million in early 2018, experiencing moderate growth and some volatility through 2019 and 2020. Notably, there is a substantial increase in mid-2021, peaking near $2.28 billion at June 30, 2021, followed by a sharp decline by the end of 2021 and stabilization around $850 million through mid-2022. This pattern suggests a period of significant operational or investment activity that temporarily increased working capital before returning closer to previous levels.

Revenue

Revenue displays an overall upward trajectory with evident seasonality. Starting at about $121 million in March 2018, revenue grows steadily with a marked increase from late 2019 onward. The rise is especially pronounced in 2020, with revenue surpassing $600 million by December 2020, and remaining above $500 million through mid-2022. The seasonal peaks typically occur in December quarters, indicating possible cyclical sales trends.

Working Capital Turnover

The working capital turnover ratio demonstrates variability that corresponds inversely with changes in working capital and revenue. Initially, the ratio gradually increases from 0.78 in early 2018 to levels around 1.2 by late 2020, signifying improved efficiency in utilizing working capital to generate revenue. However, the ratio shows a significant spike to 3.68 in March 2022 coinciding with significantly lower working capital relative to revenue, suggesting much higher turnover efficiency or a reduced working capital base. Following this peak, the ratio decreases to around 2.9 by late 2022 but remains elevated relative to earlier periods.

In summary, revenue growth has been strong with clear seasonal patterns, while working capital has been more volatile, particularly in 2021. The working capital turnover ratio improvements indicate an overall enhancement in capital efficiency, especially notable in early 2022, potentially reflecting changes in working capital management or operational improvements.

Receivables Turnover

The receivables turnover ratio exhibits a generally increasing trend from 2018 through 2022, indicating progressively more efficient collection of receivables. Starting at 14.87 in March 2018, the ratio fluctuated moderately around the mid-teens until the end of 2018. A significant jump occurred in 2019, with the ratio rising above 50 and continuing to increase with some quarterly variation. The peak in receivables turnover was registered in mid-2022, where it reached values above 110, suggesting that the company was collecting receivables more rapidly compared to prior years. Despite occasional dips, the overall upward trajectory points to improving efficiency in receivables management over the observed period.

Average Receivable Collection Period

This metric inversely correlates with the receivables turnover ratio and demonstrates a declining pattern over time, indicating faster collection of outstanding receivables. The average collection period fell from approximately 25 days in early 2018 to a low of around 3 to 4 days from 2021 onward. After a brief period in 2018 and 2019 where it ranged around 6 to 7 days, the collection period shortened substantially starting in 2020 and remained consistently low through 2022. This sustained reduction in collection days further confirms enhanced efficiency in converting receivables to cash.

Overall Insights

The data reveals a clear and steady improvement in the management of accounts receivable. The substantial increase in receivables turnover coupled with the reduction in collection period suggests stronger credit policies, quicker payment from customers, or more effective collection processes. This improved liquidity aspect may have positive implications for cash flow and operational flexibility. The consistency of these improvements into 2022 indicates a sustained trend rather than short-term fluctuations.

Payables Turnover Ratio

The payables turnover ratio exhibits significant fluctuations over the observed periods. Initially, the ratio decreased from 19.47 to 7.19 within the first four quarters, indicating a slower rate of settling payables during that timeframe. Subsequently, the turnover stabilized around 10 to 11 for the next four quarters. Starting from early 2020, there is a notable increase with peaks reaching as high as 44.61 in the fourth quarter of 2021, followed by some variation but maintaining generally elevated values above 20. This trend suggests a progressively quicker payment cycle, especially marked from 2020 onward.

Average Payables Payment Period

The average payables payment period shows an inverse trend corresponding to the turnover ratio. Beginning with a relatively low duration of 19 days, it lengthened to 51 days by the end of 2018, reflecting slower payments to suppliers. Afterward, the period hovered around 30 to 36 days until early 2020. From then on, a sharp decrease in the average payment period is observed, reaching lows as brief as 8 days in several quarters from 2021 through 2022. This decline aligns with the rising payables turnover, confirming a trend toward faster payments within recent years.

Overall Interpretation

Over the entire span, the company has demonstrated a marked shift from slower to considerably faster payment practices. The early period was characterized by extended payables cycles, potentially indicating tighter cash management or negotiation strategies favoring longer payment terms. The subsequent acceleration in payables turnover and reduction in payment days from 2020 onward could reflect improved liquidity, stronger supplier relationships, or strategic changes to optimize working capital. The persistence of a short payment period during 2021 and 2022 suggests a consistent approach to expedited supplier payments during these later quarters.