First Solar Inc. (NASDAQ:FSLR)

The financial ratios and periods analyzed reveal notable trends in operational efficiency and working capital management over recent years.

Inventory Turnover

The inventory turnover ratio shows a clear declining trend from 5.67 in early 2020 to 1.65 by the third quarter of 2024. This indicates that inventory is being sold and replaced less frequently, suggesting either increased inventory levels or slower sales relative to inventory. Correspondingly, the average inventory processing period has lengthened significantly, rising from 64 days in early 2019 to 222 days by the third quarter of 2024, highlighting a longer holding period for inventory.

Receivables Turnover

The receivables turnover demonstrates substantial volatility, peaking at 16.0 in late 2020, followed by significant fluctuations around lower averages in subsequent periods, generally hovering between 4 and 10. This variation corresponds with changes in the average receivable collection period, which decreased notably to around 23 days in late 2019 but increased to over 70 days intermittently between 2022 and 2024. Such instability suggests inconsistency in credit collection efficiency during the period.

Payables Turnover

The payables turnover ratio exhibits considerable fluctuation, with periods of both high and low turnover rates. After rising from 11.53 in early 2020 to a peak of 20.79 in late 2023, the ratio declined afterward. In parallel, the average payables payment period generally fluctuated between 18 and 49 days, indicating variable payment terms or supplier management strategies across quarters. The notable spike to 20.79 payables turnover suggests a brief period of faster payables settlements, but the ratio subsequently normalized.

Working Capital Turnover

Working capital turnover ratios fluctuated moderately, typically ranging from just below 1.0 to nearly 1.9 during the period. After a dip to 0.95 in late 2022, there was a gradual recovery approaching 1.89 by the third quarter of 2024. This pattern implies an improving ability to generate sales from working capital but still indicates relatively modest efficiency overall.

Operating Cycle

The operating cycle, measuring the combined inventory and receivables duration, increased from approximately 101 days at the end of 2019 to 294 days by the third quarter of 2024. This extension reflects the lengthening in both inventory processing and receivable collection periods, pointing to slowing operational activity or changes in credit and inventory policies.

Cash Conversion Cycle

The cash conversion cycle, which accounts for the net duration funds remain tied up in working capital, mirrors the operating cycle trend and expanded from roughly 80 days at the end of 2019 to 247 days by late 2024. Such an increase indicates a lengthening in the time between cash outflows and inflows, which could signal potential liquidity management challenges.

In summary, the data indicates a gradual decline in operational efficiency related to inventory management and receivables collection over the analyzed period. While payables management shows greater variability, the overall extension of the operating and cash conversion cycles highlights an increasing duration of capital tied up in day-to-day operations. The modest recovery in working capital turnover in later periods suggests some improvement, but operational liquidity remains under pressure due to slower turnover ratios and prolonged operating cycles.

Cost of Sales

The cost of sales exhibits considerable fluctuations throughout the analyzed quarters. Starting at approximately 532 million USD in the first quarter of 2019, it decreased to around 408 million USD by the third quarter of 2019 before surging sharply to over 1 billion USD at the end of 2019. Thereafter, it showed a generally irregular pattern with peaks and troughs observed across subsequent quarters. Notable peaks are seen in the fourth quarter of 2022 reaching around 942 million USD, and in the fourth quarter of 2020 at about 660 million USD. The most recent data points for early 2024 indicate a moderate decrease compared to the previous quarter yet maintain values well above 400 million USD, showing persistent volatility.

Inventories

Inventories experienced a notable upward trend over the entire period. Initially recorded at approximately 459 million USD in early 2019, inventories progressively increased, with some periods of stabilization or slight decline. Substantial increases are observed particularly from late 2021 onwards, culminating in a peak of about 1.25 billion USD by the third quarter of 2024. This sharp growth indicates accumulation of stock or slower conversion of inventories into sales, suggestive of changing operational dynamics or strategic stockpiling.

Inventory Turnover Ratio

The inventory turnover ratio reveals a steady downward trend over time, suggesting a lengthening period for inventory liquidation. Starting from a high turnover ratio of approximately 5.67 in the first quarter of 2020, the ratio progressively declined to below 2 by mid-2024. The decline in turnover ratio indicates that inventory is being sold or used at a slower rate, which may reflect shifting market conditions, changes in demand, or potential inefficiencies in inventory management. The lowest turnover ratios, near 1.65 to 1.99, occur in the latest quarters, reinforcing a longer holding period for inventories relative to earlier years.

Overall Financial Pattern

The combined analysis of the cost of sales, inventories, and inventory turnover suggests a scenario of rising inventory levels alongside volatile costs and diminishing turnover efficiency. While cost of sales experiences irregular shifts potentially tied to seasonal or operational factors, the steadily increasing inventories and declining turnover ratios indicate a growing stock accumulation with slower movement through the sales process. This combination could point to challenges in demand forecasting, supply chain management, or market dynamics affecting inventory absorption and cost control.

Net Sales Trends

Net sales display notable volatility across the periods under review. From the first quarter of 2019 through 2020, sales fluctuated significantly, peaking sharply at the end of 2019 with 1,399,377 thousand US dollars before dropping to 609,232 thousand US dollars in the fourth quarter of 2020. The following quarters show periodic increases and decreases, with a general uptrend from the first quarter of 2022 through 2024. The highest sales figure within this latter period occurs in the fourth quarter of 2023 with 1,158,553 thousand US dollars, indicating strong seasonal or cyclical performance. Overall, the data suggest a pattern of cyclical rebounds amid intermittent declines.

Accounts Receivable Trade, Net

Accounts receivable demonstrate considerable fluctuations but do not closely follow the pattern of net sales. A significant peak appears in the first quarter of 2021 with 790,096 thousand US dollars, followed by a sharp decline through the remainder of 2021 and fluctuating values thereafter. The first quarter of 2023 records lower receivables compared to the prior peak but then increases sharply in the subsequent quarters, reaching 762,138 thousand US dollars by the third quarter of 2024. This variability in receivables may suggest changes in credit policy, collection effectiveness, or sales mix affecting receivable balances over time.

Receivables Turnover Ratio

The receivables turnover ratio, available from the first quarter of 2020 onward, exhibits substantial variability, reflecting changes in how efficiently receivables are collected relative to sales. The ratio ranges from a low of approximately 3.77 in the first quarter of 2021 to a high of 16.0 in the fourth quarter of 2020. Such oscillations indicate periods of both improved and diminished collection efficiency. Generally, the ratio shows moderate improvement or stabilization in more recent quarters, with turnover values mostly between 4.2 and 5.8 from 2022 through 2024, suggesting a return to a steadier collection performance after earlier volatility.

Overall Financial Insights

The financial data reveal a company experiencing pronounced fluctuations in sales and receivables balances, likely influenced by seasonal factors and possibly external market conditions. The disparity between the trends in net sales and accounts receivable at certain points suggests variable credit terms or changes in the timing of cash flows. The receivables turnover ratio’s variability underscores the impact of these factors on collection efficiency. The gradual stabilization in turnover ratios in the most recent quarters might indicate improved working capital management or more consistent sales and collection processes.

Cost of Sales

The cost of sales demonstrates notable fluctuations throughout the observed quarterly periods. Initially, the values range around 400,000 to 530,000 thousand US$, with a peak at December 2019 of approximately 1,065,822 thousand US$. After a dip in early 2020, the cost increases significantly again toward the end of 2020 and into 2021. Following this, there is a sharp decline in early 2022 but the costs surge to a new high of 941,778 thousand US$ by December 2022. The period from early 2023 shows considerable volatility, with values alternating between mid-400,000s and mid-600,000s, ending with a moderate downward trend by the third quarter of 2024.

Accounts Payable

Accounts payable shows a somewhat irregular pattern but generally demonstrates steady levels within the 140,000 to 350,000 thousand US$ range. There is a slight declining trend from 2019 into early 2020, followed by moderate increases through late 2020 and 2021. A notable spike occurs in December 2022, reaching over 341,000 thousand US$, which then declines but remains elevated throughout 2023. By mid to late 2024, accounts payable figures indicate a modest increase, suggesting some variability but no clear long-term trend.

Payables Turnover Ratio

The payables turnover ratio, available from March 2020 onwards, reveals significant variability quarter to quarter. The ratio peaks at 20.79 in December 2023, indicating a high frequency of payables being settled during that quarter. Other notable peaks include 17.2 in December 2020 and several values above 13 during 2020 and 2022. Periods such as late 2022 and early 2024 show a lower turnover, dropping to values around 7.7 to 8.8, implying slower payments during these intervals. Overall, the ratio fluctuates considerably, indicating inconsistency in the payment cycle over the analyzed quarters.

General Observations

There is no straightforward correlation between cost of sales and accounts payable, as both exhibit volatile movements but do not consistently move in tandem. The spikes in cost of sales do not always correspond to proportionate increases in accounts payable. The payables turnover ratio’s variability suggests fluctuations in the company's payment policies or timing, which might also be influenced by market or operational factors. These dynamics reflect a business environment with changing cost structures and payment behaviors, emphasizing the need for ongoing monitoring to optimize working capital management.

Working Capital

The working capital demonstrates a generally fluctuating trend over the observed periods. Initially, there is a gradual decline from approximately 2.8 billion in early 2019 to about 2 billion by mid-2020. Subsequently, the working capital recovers somewhat, reaching around 2.75 billion at the end of 2022, before experiencing another decline down to about 2 billion by September 2024. Short-term movements appear cyclic with no sustained upward or downward long-term trajectory.

Net Sales

Net sales exhibit a strong seasonal or cyclical pattern, with some quarters showing significant spikes. Early 2019 values are in the range of roughly 500-600 million, rising sharply in the fourth quarter of 2019 to nearly 1.4 billion. In 2020 and 2021, sales fluctuate considerably, peaking at 927 million in Q3 2020 and again exceeding 900 million at year-end 2021. There is a noticeable surge in Q4 sales for multiple years, pointing to possible seasonal demand spikes. The most recent periods, including through mid-2024, reveal an upward trend with sales approaching nearly 1.0 to 1.1 billion before a slight drop at the end of the timeframe.

Working Capital Turnover Ratio

The working capital turnover ratios are incomplete for early periods but start to provide insight from the end of 2019 onward. Ratios generally fluctuate between about 1.0 and 1.7, indicating varying efficiency in using working capital to generate sales. The ratio peaks near 1.89 in late 2024, suggesting improved efficiency in turning over working capital into sales. Earlier in the timeframe, turnover tended to be more modest, around 1.1 to 1.2, with occasional dips below 1.0, indicating periods of reduced operational efficiency. The overall recent trend points to enhanced utilization of working capital.

Overall Insights

The data reveals cyclical behavior in both working capital and net sales, with marked seasonality evident in revenue spikes near year-end. Despite fluctuations, net sales show a gradual increase in peak values over the years, reflecting possible growth in market demand or operational scale. Working capital levels do not show a definitive growth trend, instead moving within a range that suggests careful management without aggressive expansion in current assets or liabilities. Improvements in working capital turnover toward the end of the period imply strengthened operational efficiency, potentially driven by better inventory management or receivables collection.

Inventory Turnover

The inventory turnover ratio shows a declining trend over the entire period from March 2019 through September 2024. Initial values around 5.67 in early 2020 steadily decreased to as low as 1.65 by September 2024. This represents a significant reduction in the frequency at which inventory is sold and replaced. Periodic fluctuations are apparent, but the overall movement is clearly downward.

Average Inventory Processing Period

Inversely related to inventory turnover, the average inventory processing period has increased markedly over the same time span. Starting from approximately 64 days in early 2020, the inventory processing period extended steadily, reaching a high of 222 days by September 2024. This indicates a lengthening cycle for inventory to move through the company, requiring more time on average to convert inventory into sales.

Patterns and Insights

The inverse relationship between the inventory turnover ratio and the average processing period is consistent with typical inventory management principles, where a declining turnover correlates with longer inventory holding times. The prolonged increase in the inventory processing period suggests a deceleration in inventory movement which could be attributable to changes in supply chain efficiency, demand fluctuations, or product mix shifts. The downward trend in turnover and upward trend in processing period may indicate challenges in inventory management that could impact liquidity and operational efficiency if the trend continues.

The receivables turnover ratio and the average receivable collection period exhibit notable fluctuations throughout the observed periods, reflecting varied efficiency in receivables management over time.

Receivables Turnover Ratio

The ratio starts at 6.45 in March 2020 and rises sharply to a peak of 16 by December 2020, indicating improved efficiency in collecting receivables during that period. However, post-December 2020, the turnover ratio declines substantially with some volatility, reaching a low point of 3.77 in June 2021. Thereafter, it recovers somewhat, fluctuating within a moderate range mostly between approximately 5 and 9 until December 2023. The latest values in 2024 remain stable but relatively low, suggesting a moderate pace of receivables turnover compared to the peak observed in late 2020.

Average Receivable Collection Period

This metric inversely correlates with the turnover ratio. It begins at 57 days in March 2020, then decreases sharply to 23 days by December 2020, implying quicker collection of receivables consistent with the high turnover ratio at that time. Following December 2020, the collection period increases significantly, reaching a high of 97 days in June 2021, which corresponds with the concurrent drop in receivables turnover. Subsequently, the collection period fluctuates between about 35 to 77 days, showing periods of both improved and deteriorated collection efficiency. Towards the end of the dataset, values range around 63 to 72 days, indicating a prolonged collection duration compared to earlier periods.

Overall, the data reveals cyclical trends in receivables management efficiency, with an initial phase of strong performance in late 2020 followed by a marked decline and ongoing variability through mid-2024. This suggests potential challenges in maintaining consistent collection efficiency, which could affect cash flow stability.

The data reveals noteworthy trends in the operational efficiency indicators over multiple quarters, focusing on average inventory processing period, average receivable collection period, and the overall operating cycle.

Average Inventory Processing Period

The inventory processing period exhibits a generally increasing trend throughout the timeline. Starting from 64 days in March 2020, it climbs to 78 days by December 2020, then escalates sharply to 119 days by the end of 2021. In 2022, the period peaks around 159 days mid-year before experiencing some fluctuations, including a notable decrease to 89 days in March 2023. However, afterward, the period again increases steadily, reaching its highest recorded value of 222 days by September 2024. This pattern suggests growing challenges or strategic changes in inventory management, potentially indicating slower inventory turnover or extended holding periods.

Average Receivable Collection Period

The receivable collection period shows more variability. It begins at 57 days in March 2020, then sharply decreases to 23 days by December 2019—a reverse chronological anomaly suggesting potential data entry concerns. More consistently, from March 2021 onwards, the collection period oscillates, reaching a peak of 97 days in March 2021, followed by a marked decline to 35 days by December 2021. During 2022 and beyond, it fluctuates between 39 and 87 days, ending at 72 days in September 2024. These swings could point to inconsistencies in customer payment behavior or changes in credit policy and collection effectiveness.

Operating Cycle

The operating cycle, which combines inventory processing and receivable collection periods, follows a general upward trend. Starting at 121 days in March 2020, it reaches 154 days by December 2021, continuing to rise to 207 days mid-2022. Despite a temporary decline to 134 days in March 2023, the cycle expands significantly thereafter, peaking at 294 days by September 2024. This increase signals an elongation in the time required to convert inventory and receivables into cash, reflecting potential liquidity pressures or operational inefficiencies.

Overall, the data indicates a lengthening operational cycle driven primarily by increased inventory holding times and fluctuating receivable collection durations. These trends may warrant further investigation into inventory management practices and credit control policies to enhance working capital efficiency.

Payables Turnover

The payables turnover ratio exhibits a fluctuating trend over the observed quarters. Initially, from March 2020 to December 2020, there is a clear upward trajectory from 11.53 to 17.20, indicating an accelerating rate of payments to suppliers. However, from the first quarter of 2021 onward, the ratio shows considerable volatility, with values oscillating between approximately 9.74 and 20.79. Notably, the ratio peaks at 20.79 in the fourth quarter of 2023, suggesting a significant increase in payables turnover during that period. Subsequently, the ratio declines again, finishing at 7.76 by the third quarter of 2024. Overall, the payables turnover does not maintain a consistent trend but reflects periods of both increased and decreased payment activity.

Average Payables Payment Period

The average payables payment period, expressed in number of days, inversely correlates with payables turnover and shows considerable variation across the quarters. From March 2020 to December 2020, the payment period shortens significantly from 32 days to 21 days, aligning with the increase in payables turnover seen during the same timeframe. In 2021 and 2022, the payment period largely remains in the high 20s to low 30s range, indicating a moderate payment pace. A marked increase occurs in the first quarter of 2023, where the payment period rises sharply to 49 days, followed by a gradual reduction to 18 days by December 2023. This decrease coincides with the peak in payables turnover, reflecting quicker payment cycles. Toward mid-2024, the payment period increases again, reaching 47 days by September 2024, suggesting a lengthening of payment terms or slower settlements.

Insights

The data indicates that the company's payment behavior is dynamic, with periods of accelerated payables processing balanced by intervals of extended payment durations. The inverse relationship between payables turnover and the average payment period is evident, as expected. Significant fluctuations during 2023 point to potentially changing supplier relationships or adjustments in cash management policies. The recent increase in the payment period in 2024 could imply a strategic decision to defer payments or reflects operational challenges. Continuous monitoring of these metrics is advisable to understand underlying causes and maintain financial stability.

The data shows notable fluctuations across the analyzed financial periods, revealing distinct trends in the company's working capital management.

Average inventory processing period

The inventory turnover in days generally increased over time. Starting from 64 days in March 2020, it rose to as high as 222 days by September 2024. This suggests a lengthening in the time inventory remains before being processed, indicating potentially slower inventory movement or accumulation toward the later periods.

Average receivable collection period

This metric exhibited volatility, initially decreasing from 57 days in March 2020 to as low as 23 days in December 2019, then experiencing significant spikes such as 97 days in March 2021. The period later fluctuated around the 40 to 80-day range. These variations imply inconsistent efficiency in collecting receivables, with periods of slower collections affecting liquidity.

Average payables payment period

The payables payment period remained relatively stable but with intermittent increases. It generally hovered in the 20 to 40-day range before surging to 49 days in March 2023 and staying elevated above 35 days for several quarters thereafter. The lengthening in payment cycles may reflect extended credit terms or delayed payments to suppliers.

Cash conversion cycle

The cash conversion cycle rose substantially from 89 days in March 2020 to a peak of 247 days by September 2024. The trend illustrates a marked deterioration in the company's ability to convert investments in inventory and receivables back into cash. The prolonged cycle may impact liquidity and highlight potential inefficiencies in managing working capital components.

Overall, the increasing inventory processing period combined with volatile receivable collections and longer payables payments has contributed to an expanding cash conversion cycle. This suggests a growing challenge in efficiently managing working capital, which could affect operational cash flow and necessitate strategic review.