First Solar Inc. (NASDAQ:FSLR)

The financial data reveals several noteworthy trends in key operational efficiency ratios over the five-year period ending in 2023.

Inventory turnover

This ratio shows a general declining trend, falling from 5.67 in 2019 to 2.46 in 2023. The decline indicates slower inventory movement, suggesting that inventory is being held longer before being sold.

Receivables turnover

Receivables turnover exhibits fluctuations, peaking at 10.19 in 2020, then decreasing to 5.02 by 2023. This suggests variability in the effectiveness of collecting receivables, with collection efficiency deteriorating in recent years.

Payables turnover

The payables turnover ratio remains relatively stable between 11.53 and 9.74 over the period, with a dip in 2022 to 7.47. A lower payables turnover in 2022 may indicate longer payment periods to suppliers during that year.

Working capital turnover

A gradual downward trend is evident, decreasing from 1.34 in 2019 to 1.00 in 2023. This reflects a reduction in the efficiency with which working capital is being used to generate sales.

Average inventory processing period

There is a general increase in the average number of days inventory is held, rising from 64 days in 2019 to 148 days in 2023. This aligns with the decreasing inventory turnover and indicates slower inventory movement.

Average receivable collection period

The average period fluctuates, initially improving from 57 days in 2019 to 36 days in 2020, but increasing again to 73 days by 2023. The increase in recent years suggests slower collection of receivables, which can impact liquidity.

Operating cycle

The operating cycle lengthens over the period, extending from 121 days in 2019 to 221 days in 2023. This increase results from longer inventory processing and receivable collection periods, indicating that cash is tied up in operations for a more extended time.

Average payables payment period

The average payment period to suppliers remains relatively constant, with a slight increase to 49 days in 2022 before decreasing to 37 days in 2023. The peak in 2022 suggests temporary extension of payment terms or delayed payments during that year.

Cash conversion cycle

The cash conversion cycle shows a significant rise, from 89 days in 2019 to 184 days in 2023, despite a dip in 2022. This suggests that the company takes longer to convert investments in inventory and receivables back into cash, potentially straining liquidity.

Overall, the data indicates a trend towards longer holding periods for inventory and receivables, coupled with a gradually extended cash conversion cycle. These trends point to reduced operational efficiency and potential challenges in working capital management in recent years.

The analysis of the financial data reveals several key trends over the five-year period from 2019 to 2023 that provide insight into the operational efficiency and inventory management.

Cost of Sales

The cost of sales initially decreased from 2,513,905 thousand US dollars in 2019 to 2,030,659 thousand US dollars in 2020, indicating a reduction in expenses related to production or procurement. In 2021, the cost increased slightly to 2,193,423 thousand US dollars, followed by a further increase in 2022 to 2,549,461 thousand US dollars, surpassing the 2019 level. However, in 2023, the cost of sales again decreased significantly to 2,017,923 thousand US dollars, the lowest point in the observed period except for 2020. This fluctuation suggests variations in production volume, input costs, or pricing strategies across the years.

Inventories

The inventory balance showed a generally increasing trend throughout the period. Beginning at 443,513 thousand US dollars in 2019, it rose to 567,587 thousand US dollars in 2020 and continued growing to 666,299 thousand US dollars in 2021. Although there was a slight reduction in 2022 to 621,376 thousand US dollars, the inventory level surged again in 2023 to 819,899 thousand US dollars. This pattern suggests an accumulation of stock over time, with a particularly notable increase in the latest period, which may imply changes in demand forecasting, supply chain delays, or strategic stockpiling.

Inventory Turnover Ratio

The inventory turnover ratio, which measures how efficiently the company manages inventory relative to its cost of sales, displayed a declining trend overall. From a high of 5.67 in 2019, it dropped sharply to 3.58 in 2020 and continued decreasing to 3.29 in 2021. In 2022, an improvement was seen as the ratio rose to 4.10, but this was followed by a marked decline to 2.46 in 2023, the lowest point in the period. The downward trend, especially the recent drop, indicates slower inventory movement and potentially overstocking or reduced sales efficiency.

In summary, the data exhibits a pattern where inventory levels have generally increased while the inventory turnover ratio has decreased, particularly in the most recent year. Meanwhile, the cost of sales has fluctuated without a clear linear trend but ended sharply lower in 2023. These factors collectively suggest challenges in inventory management and potential shifts in operational efficiency or market conditions during the latest period under review.

Net Sales

The net sales figures exhibit fluctuations over the five-year period. Beginning at approximately 3.06 billion USD in 2019, there was a decline in 2020 to around 2.71 billion USD, which may reflect economic or market challenges during that year. Sales partially recovered in 2021 to nearly 2.92 billion USD, followed by another dip in 2022 to about 2.62 billion USD. In 2023, a significant increase occurred, with sales reaching approximately 3.32 billion USD, the highest within the observed period, indicating a strong rebound or expansion in business activity.

Accounts Receivable Trade, Net

The net accounts receivable values show considerable volatility. A sharp decrease is noted from 475 million USD in 2019 to 266 million USD in 2020, suggesting improved collection or reduced sales credit. However, in 2021, receivables increased substantially to around 429 million USD, then declined again in 2022 to roughly 324 million USD. The year 2023 marks a pronounced rise to about 661 million USD, suggesting a notable expansion in credit sales or a lengthening of collection periods during that year.

Receivables Turnover Ratio

This efficiency ratio fluctuates inversely with accounts receivable values. The highest turnover was in 2020 at 10.19, indicating rapid collection of receivables, likely tied to the reduced receivables balance that year. The turnover ratio declined in 2021 to 6.81 and then improved somewhat in 2022 to 8.08. A significant decrease to 5.02 in 2023 reflects slower collection or increased outstanding receivables relative to net sales, consistent with the rise in accounts receivable and suggesting potential challenges in receivables management or changes in credit policy.

Cost of Sales

The cost of sales demonstrates a fluctuating pattern over the five-year period. The figure decreased notably from 2,513,905 thousand US dollars in 2019 to 2,030,659 thousand US dollars in 2020. It then showed a moderate increase to 2,193,423 thousand US dollars in 2021, followed by a significant rise to 2,549,461 thousand US dollars in 2022. In 2023, there was another substantial decrease, bringing the cost of sales down to 2,017,923 thousand US dollars, the lowest level within the given timeframe.

Accounts Payable

Accounts payable values fluctuated notably over the period analyzed. Beginning at 218,081 thousand US dollars in 2019, the amount decreased to 183,349 thousand US dollars in 2020. This was followed by a slight increase to 193,374 thousand US dollars in 2021. The most significant rise occurred in 2022, where accounts payable surged to 341,409 thousand US dollars, indicating extended payment periods or increased purchasing activity. In 2023, the accounts payable balance decreased sharply to 207,178 thousand US dollars, approaching the levels seen initially in the period.

Payables Turnover Ratio

The payables turnover ratio, which indicates how quickly the company pays its suppliers, remained fairly stable between 2019 and 2021, fluctuating slightly around 11 times per year. However, in 2022, there was a marked decline in the turnover ratio to 7.47, which is consistent with the substantial increase in accounts payable that year and implies slower payment to suppliers. In 2023, the turnover ratio recovered somewhat to 9.74 but did not return to the previous high levels, suggesting a partial normalization but still relatively slower payments compared to earlier years.

Working Capital

The working capital demonstrates an overall increasing trend over the period analyzed. Starting at approximately 2.28 billion USD in 2019, it decreased slightly in 2020 to about 2.17 billion USD. Following this, there was a consistent year-on-year increase, reaching around 3.33 billion USD by the end of 2023. This indicates improving liquidity and an expanding capacity to cover short-term obligations with current assets.

Net Sales

Net sales exhibit variability with no consistent upward or downward trend. Beginning at roughly 3.06 billion USD in 2019, there was a decline in 2020 to approximately 2.71 billion USD, possibly indicative of external industry or economic factors impacting revenue. A moderate recovery is seen in 2021 to nearly 2.92 billion USD, followed by a decline again in 2022 to about 2.62 billion USD. Sales rebounded strongly in 2023, surpassing previous years to reach approximately 3.32 billion USD, suggesting improved market conditions or successful sales strategies in that year.

Working Capital Turnover

The working capital turnover ratio shows a decreasing trend from 2019 through 2022, moving from 1.34 to 0.95. This implies diminishing efficiency in utilizing working capital to generate sales during this period. However, in 2023, the ratio rises slightly to 1.0, indicating a potential stabilization or mild improvement in the efficiency of working capital usage relative to sales generation.

Overall Analysis

The company has increased its working capital substantially over the five-year period, likely strengthening its short-term financial stability. Despite fluctuations in net sales, the marked increase in sales in 2023 may reflect positive operational or market developments. The declining trend in working capital turnover ratios until 2022 points to decreasing efficiency in capital utilization, which slightly recovers in 2023. The simultaneous increase in both working capital and sales in the most recent year could denote a more balanced and improved operational efficiency.

Inventory Turnover

The inventory turnover ratio exhibits a declining trend over the five-year period. It decreased significantly from 5.67 in 2019 to 3.58 in 2020, followed by a slight reduction to 3.29 in 2021. There was a moderate recovery to 4.1 in 2022, but the ratio dropped sharply again to 2.46 in 2023. This overall decline suggests a progressively slower rate at which inventory is being sold and replaced throughout the years.

Average Inventory Processing Period

The average inventory processing period has shown an opposite pattern to the inventory turnover, generally increasing across the observed years. It rose from 64 days in 2019 to 102 days in 2020 and further to 111 days in 2021. A slight improvement occurred in 2022 when the period shortened to 89 days, yet it expanded considerably to 148 days in 2023. This extension indicates that on average inventory is held for increasingly longer durations before being processed or sold.

Overall Analysis

The trends in both ratios are inversely related and indicate a reduction in inventory management efficiency over the analyzed timeframe. The longer processing periods together with declining turnover ratios imply potential issues such as overstocking, slower sales, or supply chain inefficiencies. The temporary improvements in 2022 suggest isolated positive effects, but the sharp changes in 2023 point to renewed or exacerbated challenges in managing inventory effectively.

The analysis of the provided financial ratios over the five-year period reveals notable fluctuations in the company's receivables management efficiency.

Receivables Turnover Ratio

The receivables turnover ratio exhibits variability, starting at 6.45 in 2019, increasing sharply to 10.19 in 2020, followed by a decrease to 6.81 in 2021. It then rose moderately to 8.08 in 2022 but declined significantly to 5.02 in 2023. This pattern indicates an overall reduction in the efficiency of collecting receivables by the end of the period compared to the beginning, with the highest efficiency occurring in 2020.

Average Receivable Collection Period

The average receivable collection period broadly mirrors the inverse trend of the receivables turnover ratio. It decreased from 57 days in 2019 to a low of 36 days in 2020, suggesting faster collection during that year. Subsequently, the period extended to 54 days in 2021, improved somewhat to 45 days in 2022, but then increased markedly to 73 days in 2023, indicating a prolonged period for collecting receivables.

Overall, the data implies that the company experienced its most efficient receivables management in 2020, with quicker turnover and shorter collection periods. However, the subsequent years show a regression toward less efficient collection processes, culminating in the longest collection period and lowest turnover ratio in 2023. This trend may suggest challenges in credit management or changes in sales terms affecting cash flow timing.

Average Inventory Processing Period

The average inventory processing period exhibits significant variability over the analyzed years. It increased from 64 days at the end of 2019 to 102 days in 2020, followed by a smaller rise to 111 days in 2021. In 2022, there was a notable decline to 89 days, indicating improved inventory turnover efficiency. However, in 2023, the period sharply increased to 148 days, representing the highest level in the five-year span and suggesting a slowdown in inventory processing.

Average Receivable Collection Period

The average receivable collection period shows a fluctuating pattern. It decreased substantially from 57 days in 2019 to 36 days in 2020, suggesting enhanced collection efficiency during this period. In the subsequent year, this period increased to 54 days, then reduced again to 45 days in 2022, before rising sharply to 73 days in 2023. The increase in 2023 may indicate challenges in collecting receivables or extended credit terms offered to customers.

Operating Cycle

The operating cycle, representing the time taken to convert inventory and receivables into cash, generally trended upward across the years. It rose from 121 days in 2019 to 138 days in 2020, then further to 165 days in 2021, indicating a lengthening of the cycle. A reduction to 134 days occurred in 2022, implying some improvement in operational efficiency. Nonetheless, the operating cycle expanded significantly to 221 days in 2023, reflecting a combination of longer inventory processing and receivable collection times, potentially exerting pressure on working capital management.

Payables Turnover

The payables turnover ratio showed a relatively stable trend from 2019 to 2021, with values close to 11.5, indicating a consistent rate at which payables were paid off. However, in 2022, there was a marked decline to 7.47, suggesting a slower payment cycle or extended credit terms with suppliers. In 2023, the ratio partially recovered to 9.74 but remained below the earlier levels, indicating a continued moderation in payment velocity compared to the initial years.

Average Payables Payment Period

The average payment period mirrored the inverse of the payables turnover trend. It remained steady around 32 to 33 days between 2019 and 2021, reflecting consistent payment timing. A sharp increase to 49 days occurred in 2022, corroborating the slower turnover ratio observed in the same year and indicating that payables were being settled over a longer duration. In 2023, the payment period shortened to 37 days but did not revert to pre-2022 levels, confirming a partial adjustment yet indicating a longer creditor financing cycle than in earlier years.

Overall Insights

The data reflects a significant shift in the company's management of its payables starting in 2022, with a strategic or situational extension of payment periods. This shift may impact cash flow dynamics, potentially improving short-term liquidity at the expense of longer vendor payment times. The partial return towards previous turnover rates and payment periods in 2023 suggests an adaptation phase rather than a permanent structural change.

Average Inventory Processing Period

The average inventory processing period showed a notable increase from 64 days in 2019 to 111 days in 2021, indicating a lengthening time to process inventory. This was followed by a reduction to 89 days in 2022, suggesting some improvement in inventory management. However, in 2023, there was a significant surge to 148 days, marking the highest value in the period under review and indicating potential challenges in inventory turnover or supply chain delays.

Average Receivable Collection Period

The receivable collection period experienced fluctuations over the years. It decreased sharply from 57 days in 2019 to 36 days in 2020, reflecting an improvement in collecting receivables. Afterward, it increased to 54 days in 2021, then decreased to 45 days in 2022, showing some variability but generally remaining within a moderate range. In 2023, this period rose significantly to 73 days, indicating slower receivables collection and potentially impacting cash flow negatively.

Average Payables Payment Period

The average payables payment period remained relatively stable around 32-33 days from 2019 through 2021. In 2022, there was a marked increase to 49 days, suggesting an extended timeframe before settling payables, which could be a strategic move to manage working capital. In 2023, this period shortened to 37 days, indicating a return closer to earlier payment patterns.

Cash Conversion Cycle

The cash conversion cycle exhibited an overall upward trend with considerable variance. Starting at 89 days in 2019, it increased to 105 days in 2020 and peaked at 133 days in 2021, suggesting lengthening cash flow tied up in working capital. A notable improvement was seen in 2022, with the cycle shortening to 85 days. However, in 2023, the cycle expanded dramatically to 184 days, the highest in the observed timeframe, implying significant delays in converting resources into cash, likely due to increased inventory processing and receivable collection periods.