Express Scripts Holding Co. (NASDAQ:ESRX)

The financial ratios and periods presented reveal several observable trends over the analyzed timeframe.

Inventory Turnover

The inventory turnover ratio exhibits fluctuations throughout the periods. Initially, there is a high turnover around 54, which declines notably by the end of 2014 to about 44. It then recovers to the mid-50s in 2016 but generally trends downward from 2017 onward, reaching approximately 40 by the third quarter of 2018. This suggests a slowing rotation of inventory, potentially indicating longer holding times or changes in inventory management efficiency.

Receivables Turnover

Receivables turnover shows a declining pattern over time. Starting at 26.04 in early 2014, the ratio decreases steadily to around 13 by late 2018. This indicates that the company is collecting receivables more slowly over time, potentially increasing credit risk or reflecting extended payment terms to customers.

Payables Turnover

Payables turnover demonstrates a gradual decline from over 33 in early 2014 to approximately 20 by late 2018. The decreasing turnover ratio implies the company is taking longer to pay its suppliers, possibly as a strategy to improve cash flow or due to vendor terms extending.

Average Inventory Processing Period

This measure remains relatively stable, fluctuating narrowly between 6 and 9 days. There are slight increases after 2017, indicating marginally longer periods required to process inventory, consistent with the declining inventory turnover trend.

Average Receivable Collection Period

The collection period rises steadily from 14 days in early 2014 to 28 days by the third quarter of 2018. This confirms the slower receivables turnover and suggests customers are taking longer to pay, which could impact working capital management.

Operating Cycle

The operating cycle lengthens from 21 days to approximately 36–37 days by 2018. This increase reflects accumulated effects of longer inventory processing and receivables collection, implying a slower cash-to-cash cycle and potential working capital strain.

Average Payables Payment Period

The average time taken to pay suppliers extends from 11 days in early 2014 to around 17–19 days in 2018. This indicates that the company delays payments more into the later years, which may support liquidity but could also affect supplier relationships.

Cash Conversion Cycle

The cash conversion cycle varies between 10 and 20 days, generally increasing over time. It indicates the net days the company’s cash is tied up in operations before it is converted back into cash, with a rising trend pointing towards longer cash obligations management cycles.

Overall, the company demonstrates a pattern of slowing asset turnover and extended collection and payment periods over the analyzed quarters. This results in lengthening operational cycles and cash conversion cycles, which may impact liquidity and working capital efficiency. Monitoring these trends will be important for maintaining financial health and operational effectiveness.

Cost of Revenues

The cost of revenues exhibited fluctuations throughout the observed periods. Initially, it increased steadily from around 21.9 billion US dollars in the first quarter of 2014, peaking at approximately 24.2 billion at the end of 2014. Thereafter, there was a general decline and stabilization, with values mostly ranging between 22.3 billion and 23.8 billion from 2015 through 2018. The cost of revenues slightly declined toward the end of the dataset but remained within a relatively narrow range in comparison to earlier periods.

Inventories

Inventories showed a more volatile pattern with evident increases over time. After a moderate rise in early 2014 through late 2014, inventory levels dropped somewhat in mid-2015 before rising again towards the end of 2015 and continuing an upward trend through 2018. The levels moved from approximately 1.7 billion US dollars in early 2014 to around 2.3 billion by mid-2018, indicating an overall increase in inventory holdings.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates variability opposite to the inventory values. Starting at a high level above 54 in early 2014, the ratio declined towards the end of 2014 to below 44. It rebounded sharply mid-2015, reaching above 57, but then consistently trended downward through 2017 and 2018, reaching the lowest levels near 40 by 2018. This suggests slower inventory movement relative to cost of revenues over time and could imply reduced efficiency in inventory management or changes in sales velocity.

Overall Insights

The inverse relationship between the increasing inventory levels and decreasing inventory turnover ratio over the latter periods indicates growing stock levels relative to sales efficiency. While the cost of revenues remained relatively stable after initially rising, the increasing inventories coupled with declining turnover may signal potential challenges in inventory management. These trends could reflect shifts in demand, procurement strategies, or operational changes that warrant further investigation to optimize working capital and operational efficiency.

The financial data reveals several notable trends concerning revenues, receivables, and receivables turnover over the observed periods.

Revenues (US$ in thousands)

Revenues exhibited moderate fluctuations across the quarters without a clear long-term upward or downward trajectory. Starting at approximately 23.7 billion US dollars in March 2014, revenues peaked around 26.3 billion towards the end of 2014. Thereafter, the figures generally oscillated within a narrow range mostly between 24.6 billion and 25.7 billion, displaying no significant sustained growth or decline through to the third quarter of 2018. This pattern suggests stability in revenue generation, with seasonal or periodic variations but no disruptive changes.

Receivables, net (US$ in thousands)

The net receivables showed a consistent increasing trend across the reported periods. Initial figures near 3.9 billion US dollars in early 2014 increased steadily to approximately 7.8 billion by September 2018. The growth was relatively smooth, with increments apparent in almost every quarter, indicating a possible extension in credit terms or slower collections over time. This steady rise in receivables contrasts with the relatively stable revenues, which could imply an accumulation of outstanding payments on the company's balance sheet.

Receivables Turnover (ratio)

The receivables turnover ratio demonstrated a general downward trend during the timeframe. Beginning at a high of 26.04 in March 2014, it declined sharply by the end of 2014 and then continued a gradual descent, settling around the range of 13 to 15 from 2015 onwards, with a slight further decrease to near 13 by the third quarter of 2018. The reduction in turnover ratio aligns with the increasing receivables balance, suggesting slower collection periods and potentially lengthening credit cycles or increased risks in receivables management.

Overall, while revenues remained stable with minor quarterly variations, the significant increase in net receivables coupled with a declining turnover ratio points to a trend of slower collection and increased outstanding receivables. This pattern may warrant closer scrutiny to ensure efficient working capital management and to mitigate any credit risk that could impact liquidity.

The analysis of the quarterly financial data reveals several notable trends regarding cost of revenues, accounts payable, and payables turnover over the examined period.

Cost of Revenues

The cost of revenues generally exhibits fluctuations within a relatively narrow range over the quarters. Starting from approximately 21.9 billion US dollars in the first quarter of 2014, there is a slight upward trend reaching close to 24.2 billion US dollars by the end of 2014. Subsequently, the values oscillate, showing moderate decreases and increases but tend to stabilize mostly between 22 and 23.5 billion US dollars through to the third quarter of 2018. There is no pronounced long-term upward or downward trend; instead, this item displays short-term volatility around a stable midpoint.

Accounts Payable

Accounts payable demonstrate a clear upward trajectory over the observed quarters. From around 2.8 billion US dollars at the start of 2014, this figure generally increases, reaching near 4.8 billion US dollars by mid-2018. Some quarters reflect slight decreases or plateaus; however, the overall movement is a consistent growth in accounts payable balances, suggesting either extended payment terms, increased purchasing volumes, or higher operational activity influencing creditor balances.

Payables Turnover Ratio

The payables turnover ratio reveals a declining trend over the period analyzed. Beginning above 33 times in early 2014, the ratio gradually decreases, moving downward to near 21 times by the third quarter of 2018. This decline indicates that the company is taking longer to pay its suppliers on average or that payables are growing faster relative to the cost of revenues. The downward trend, coupled with the increase in accounts payable, implies a lengthening of payment cycles or changes in credit terms extended by suppliers.

In summary, while the cost of revenues remains relatively stable with mild quarterly fluctuations, accounts payable increase notably, and the payables turnover ratio decreases over time. These patterns suggest operational dynamics where the company may be managing cash flow by extending supplier payments, reflected by growing payables and declining turnover efficiency.

Working Capital

The working capital exhibits a generally negative balance throughout all quarters, indicating a consistent current liabilities dominance over current assets. From March 2014 to June 2016, the negative working capital fluctuates, reaching notable lows such as approximately -8.5 billion US dollars in June 2016. Post this lowest point, a recovery trend is observed, with the deficit narrowing steadily towards the end of 2018, reaching around -4.3 billion US dollars. This suggests improved short-term financial health, though the company still maintains a negative working capital position.

Revenues

The revenue figures demonstrate a relatively stable pattern with minor fluctuations across the quarters observed. Initial revenues begin at approximately 23.7 billion US dollars in early 2014, increasing steadily to a peak near 26.3 billion US dollars by the end of 2014. Subsequent quarters from 2015 through 2018 show revenues hovering mostly between roughly 24.6 billion and 26 billion US dollars, reflecting operational stability with slight cyclical variation but no clear long-term growth trend.

Working Capital Turnover

There is no available data to assess the working capital turnover ratio for the observed periods. Consequently, no insight can be derived regarding the efficiency of the company’s use of working capital to generate revenues.

Overall Insights

The persistent negative working capital, while improving after mid-2016, could indicate a strategic use of liabilities to finance operations or potential liquidity concerns if the trend were to reverse. Meanwhile, stable revenue figures suggest consistent operational activity without major growth or decline phases. The absence of turnover ratio data limits the evaluation of how effectively working capital contributes to revenue generation.

The analysis of the provided financial ratios over the quarterly periods from March 2014 to September 2018 reveals distinct trends in inventory management efficiency.

Inventory Turnover Ratio

This ratio demonstrates the number of times inventory is sold and replaced over a period. The data shows a fluctuating trend with values mostly ranging between approximately 39.97 and 57.16. The highest recorded turnover was 57.16 in June 2015, while the lowest point was 39.97 in June 2018. Notably, there is a visible decline in the turnover ratio starting from early 2017, indicating a slower rate of inventory movement during that timeframe. The ratio peaked again in mid-2016 but exhibited an undermining trend afterward, suggesting possible changes in sales volume, inventory levels, or operational efficiency.

Average Inventory Processing Period (number of days)

The average number of days required to process inventory generally remained stable within a 6 to 9 days range. Early periods reflect a consistent 7-day cycle, with intermittent fluctuations to 6 or 8 days. From 2017 onwards, there is a subtle but persistent increase in this period, moving towards 8 and 9 days, particularly in 2018. This increase aligns inversely with the declining inventory turnover, reinforcing the notion of slower inventory handling or accumulation.

Overall, the data suggest a trend towards decreasing efficiency in inventory turnover in more recent quarters combined with a modest extension in the average inventory processing period. These patterns may reflect operational challenges such as slower sales, excess inventory, or changes in supply chain dynamics impacting how quickly inventory is converted into sales.

Receivables Turnover Ratio

The receivables turnover ratio exhibits a declining trend over the observed periods. Beginning at a high of 26.04 times on March 31, 2014, the ratio decreases significantly to levels below 20 through the middle of 2014, and further declines towards the range of approximately 13 to 15 from 2015 onward. From 2016 to 2018, the turnover ratio stabilizes modestly but continues a slight downward trajectory, ending near 12.95 in September 2018. This indicates a gradual reduction in the frequency with which the company collects its receivables over the years.

Average Receivable Collection Period

The average collection period in days moves inversely to the receivables turnover ratio and shows a consistent upward trend. Starting at 14 days in March 2014, it increases steadily to fluctuate between 20 and 28 days in subsequent years. From mid-2014 through 2018, the average period ranges mostly between 23 and 28 days. The increase in collection days signifies that the company is taking longer to convert its receivables into cash as time progresses.

Overall Insights

The data suggests a gradual elongation of the receivables cycle, with the company experiencing slower collections over the four and a half years period. This could imply potential changes in credit policies, customer payment behavior, or economic conditions affecting receivables management. The stabilization of metrics in recent years indicates that while collection efficiency has decreased compared to earlier periods, it may have reached a new operational norm. Monitoring these trends is important for cash flow management and working capital optimization.

Average Inventory Processing Period

The average inventory processing period remained relatively stable with minor fluctuations over the reported quarters. It mostly ranged between 7 and 8 days, with a slight upward trend observed toward the end of the period, reaching 9 days in the last two quarters. This suggests a modest lengthening in the time taken to process inventory.

Average Receivable Collection Period

The average receivable collection period exhibited a consistent upward trend throughout the timeframe. Starting at 14 days, it increased steadily to reach 28 days by the last quarter. This indicates a gradual extension in the time required to collect receivables, which may impact cash flow and working capital management.

Operating Cycle

The operating cycle showed a clear increasing pattern, rising from 21 days at the beginning to 37 days by the end of the period. This reflects the combined effect of the trends in inventory processing and receivable collection periods. The elongation of the operating cycle suggests that the company is taking longer to convert its inventory and receivables into cash, potentially affecting liquidity.

Payables Turnover

The payables turnover ratio exhibits a declining trend from the earliest quarter in March 2014 through September 2018. Initially, the ratio was as high as 33.16, indicating rapid payment of payables relative to purchases. Over time, this ratio decreases steadily, reaching around 20.94 by September 2018, reflecting a slower turnover of payables. There are some fluctuations within this downward trend, but the overall pattern suggests increasingly extended payment terms or prolonged periods before settling accounts.

Average Payables Payment Period

Consistent with the declining payables turnover, the average payables payment period shows an increasing trend over the same timeframe. Starting at approximately 11 days in the first quarter of 2014, this period generally lengthens, peaking around 19 days in September 2018. This upward trend signifies that the company is taking longer to pay its suppliers on average, which could be indicative of changed payment strategies, liquidity management, or altered supplier negotiations.

Relationship Between Metrics

As expected, the increase in the average payables payment period corresponds inversely with the decreasing payables turnover ratio. This inverse relationship confirms consistent internal accounting and financial behaviors over the observed periods, where slower payments lengthen the payables period and reduce turnover.

Implications

The trends suggest that the company might be managing its working capital by extending payment terms, which could improve short-term cash flow. However, the increasing days payable could also signal potential supplier relationship risks if extended payments are not well negotiated. The overall change in these metrics should be monitored closely to assess its impact on supplier dynamics and the company's operational efficiency.

Average Inventory Processing Period

The average inventory processing period has remained relatively stable, fluctuating mostly between 7 and 9 days over the reported quarters. Initially, the period stayed around 7 days, with occasional increases to 8 days, and by the end of the period, it rose slightly to 9 days. This suggests a consistent but mildly increasing time to process inventory.

Average Receivable Collection Period

This period exhibits a notable upward trend, starting at 14 days and increasing steadily to 28 days over the observed timeframe. The lengthening receivable collection period indicates that the company’s customers are taking longer to pay, which could impact cash flow and working capital management.

Average Payables Payment Period

The payables payment period shows a general increase from 11 days to a peak of 19 days, before slightly decreasing towards the end of the period to 17 days. This suggests the company is extending the time it takes to pay its suppliers, possibly as a strategy to improve short-term liquidity.

Cash Conversion Cycle

The cash conversion cycle experienced fluctuations but remained within a range of 10 to 20 days. Starting at 10 days, it rose to around 18 to 20 days during various quarters, with some decreases to 15–17 days intermittently. Overall, the cycle lengthened over time, indicating that the company requires more time to convert its investments in inventory and receivables back into cash.

Summary

The data portrays a company facing increasing challenges in managing its working capital efficiently. The lengthening receivable collection period is the most significant factor contributing to an extended cash conversion cycle. Although the company has gradually increased the time taken to pay suppliers, this has not fully offset the impact of slower collections. Inventory processing periods have stayed relatively constant, indicating stable operational processes in inventory management. The overall trend suggests a cautious approach to maintaining liquidity, but the longer cash conversion cycle could potentially constrain financial flexibility if the trends persist.