Kraft Heinz Co. (NASDAQ:KHC)

The financial ratios and related metrics exhibit several noteworthy trends over the five-year period ending December 28, 2019.

Inventory Turnover

The inventory turnover ratio improved from 4.8 in 2015 to 6.3 in 2016, indicating increased efficiency in managing inventory. Although it slightly decreased to 5.87 in 2017, it rebounded to 6.5 in 2018 before experiencing a small decline to 6.19 in 2019. Overall, the ratio shows a generally positive trend signifying better inventory management and quicker movement of goods.

Receivables Turnover

This ratio increased sharply from 21.05 in 2015 to 34.44 in 2016, suggesting faster collection of receivables. However, it then declined progressively through 2017 (28.48), and more significantly in 2018 (12.34) and 2019 (12.66). The sharp drop after 2016 indicates a weakening efficiency in collecting outstanding customer payments.

Payables Turnover

The payables turnover ratio remained relatively stable, decreasing slightly from 4.42 in 2015 to 4.23 in 2016 and further to 3.72 in 2017. It recovered to 4.18 in 2018 and remained stable at 4.20 in 2019. This stability suggests consistent payment practices to suppliers over the observed years.

Working Capital Turnover

This metric displays a significant increase from 6.44 in 2015 to 16.71 in 2018 and surges dramatically to 112.51 in 2019. Data for 2016 and 2017 are missing, but the marked rise in the latest years indicates a substantial improvement in the efficiency with which working capital is employed to generate revenue.

Average Inventory Processing Period

The number of days to process inventory dropped from 76 days in 2015 to 58 days in 2016, showing improved inventory management. Although it increased slightly to 62 days in 2017, it again decreased to 56 in 2018 before marginally rising to 59 in 2019. This pattern suggests a sustained effort to maintain quicker inventory turnover.

Average Receivable Collection Period

The collection period shortened from 17 days in 2015 to 11 days in 2016, reflecting enhanced cash recovery speed. However, it lengthened thereafter to 13 days in 2017 and jumped significantly to 30 days in 2018, maintaining a similar level (29 days) in 2019. Such an increase points to deteriorating efficiency in collecting receivables.

Operating Cycle

The operating cycle generally decreased from 93 days in 2015 to 69 days in 2016, indicating faster conversion of inventory and receivables into cash. It subsequently lengthened to 75 days in 2017, and further to 86 and 88 days in 2018 and 2019, respectively. This trend suggests a slowdown in overall operational efficiency during the later years.

Average Payables Payment Period

The payment period to suppliers increased from 83 days in 2015 to 86 days in 2016 and peaked at 98 days in 2017, implying extended payment terms or slower payment practices. It then decreased to 87 days in both 2018 and 2019, reflecting partial reversal toward quicker supplier payments.

Cash Conversion Cycle

The cash conversion cycle showed improvement in 2016 and 2017, moving from 10 days in 2015 to negative values (-17 and -23 days), indicating that the company was converting cash flows more rapidly and possibly leveraging supplier credit effectively. However, this advantage diminished in 2018 and 2019 as the cycle returned close to zero (-1 and 1 day), suggesting a reduction in the company's ability to efficiently manage cash flow through operational cycles.

In summary, the data reveals improvement in inventory management and working capital efficiency, while the receivables collection has weakened substantially since 2016. The operating cycle lengthened in recent years, and the cash conversion cycle's advantage has lessened, indicating potential challenges in sustaining efficient cash flow operations. Payables turnover and payment periods have remained relatively stable, with some fluctuation, implying consistent supplier relations and payment policies.

Cost of Products Sold

The cost of products sold exhibited notable fluctuations over the five-year period. Starting at 12,577 million US dollars in 2015, it increased sharply to 16,901 million in 2016. Subsequently, a slight decline occurred, with values of 16,529 million in 2017 and 17,347 million in 2018, before a marginal decrease to 16,830 million in 2019. The overall trend indicates a peak in 2016 followed by relative stabilization with minor variations.

Inventories

Inventory levels showed a modest increasing trend from 2015 to 2019. The values rose gradually from 2,618 million US dollars in 2015 to 2,721 million in 2019, experiencing small fluctuations in intermediate years — reaching a peak of 2,815 million in 2017 before dipping to 2,667 million in 2018.

Inventory Turnover

Inventory turnover ratios demonstrated variability over the period under review. The ratio increased from 4.8 in 2015 to 6.3 in 2016, indicating improved efficiency in inventory management. There was a decrease to 5.87 in 2017, followed by a rise to 6.5 in 2018. In 2019, the ratio slightly declined to 6.19. This pattern suggests efforts to optimize inventory utilization with some yearly fluctuations.

Net Sales

The net sales demonstrated a significant increase from 2015 to 2016, rising from approximately 18.3 billion US dollars to about 26.5 billion. However, this upward trend did not continue, as net sales slightly declined in 2017 and remained relatively stable in 2018 before falling further in 2019 to around 25 billion. This indicates an initial period of substantial growth followed by stabilization and a modest decline by the end of the period.

Trade Receivables, Net of Allowances

Trade receivables showed fluctuations throughout the years. Starting at 871 million US dollars in 2015, the value decreased slightly in 2016 to 769 million but then increased substantially, reaching a peak at 2.13 billion in 2018. In 2019, receivables decreased slightly to 1.97 billion. The general trend suggests a considerable build-up of receivables after 2016, indicating either extended credit terms, slower collections, or increased sales on credit.

Receivables Turnover Ratio

The receivables turnover ratio exhibited a declining trend across the period. Beginning at a high 21.05 in 2015, the ratio peaked at 34.44 in 2016, suggesting very efficient collection practices or shorter credit terms that year. However, from 2016 onward, the turnover ratio drastically dropped to 28.48 in 2017 and further down to around 12.34 in 2018, remaining nearly stable at 12.66 in 2019. This decline implies that receivables were being converted to cash more slowly, which could be reflective of relaxed credit policies or challenges in collections.

Cost of products sold

The cost of products sold increased significantly from 12,577 million USD in 2015 to 16,901 million USD in 2016, marking a sharp rise. After 2016, the cost slightly declined to 16,529 million USD in 2017, followed by a mild increase to 17,347 million USD in 2018, and then a small decrease again to 16,830 million USD in 2019. Overall, the cost of products sold showed an upward trend with some fluctuations, stabilizing near the higher levels reached from 2016 onward.

Trade payables

Trade payables demonstrated a steady increase from 2,844 million USD in 2015 to 3,996 million USD in 2016, then continued to rise to 4,449 million USD in 2017. However, in 2018 trade payables decreased to 4,153 million USD and further declined slightly to 4,003 million USD in 2019. This indicates growth in payables initially followed by a gradual reduction in the last two years, suggesting possible improvements in payment management or negotiation terms.

Payables turnover ratio

The payables turnover ratio dropped from 4.42 in 2015 to a low of 3.72 in 2017, indicating a slower rate of payment to suppliers during this period. It then improved, rising to 4.18 in 2018 and slightly increasing to 4.20 in 2019. This pattern shows a temporary elongation of payment cycles followed by a recovery toward a faster payment pace in the latter years.

Working Capital

The working capital exhibited significant volatility over the five-year period. In 2015, it was positive at 2,848 million USD, indicating a solid liquidity position. However, in 2016 and 2017, working capital turned negative, reaching -748 million USD and further decreasing to -2,866 million USD respectively, reflecting potential liquidity challenges or increased short-term liabilities. The company recovered in 2018 with positive working capital of 1,572 million USD, though it decreased significantly to 222 million USD in 2019, suggesting a reduced buffer for short-term obligations at the end of the period.

Net Sales

Net sales increased notably from 18,338 million USD in 2015 to a peak of 26,487 million USD in 2016, representing strong revenue growth. Thereafter, net sales stabilized somewhat, with slight decreases to 26,232 million USD in 2017 and 26,268 million USD in 2018. In 2019, net sales declined to 24,977 million USD, marking a downward trend that might indicate challenges in maintaining sales volume or pricing power toward the end of the analyzed period.

Working Capital Turnover

The working capital turnover ratio, which measures the efficiency of using working capital to generate sales, showed significant fluctuations. The ratio was 6.44 in 2015, fell into missing data in 2016 and 2017, then rose sharply to 16.71 in 2018, indicating improved utilization of working capital. The ratio surged markedly to 112.51 in 2019, potentially reflecting very low working capital combined with substantial sales, which may signal efficiency gains or could point to increased financial risk due to low liquidity.

Inventory Turnover

The inventory turnover ratio exhibited an overall increasing trend from 2015 to 2019, starting at 4.8 in 2015 and peaking at 6.5 in 2018. Although there was a slight decline to 6.19 in 2019, the ratio remained significantly higher than the 2015 level, indicating generally improved efficiency in managing and selling inventory over the analyzed period.

Average Inventory Processing Period

The average inventory processing period showed a corresponding decreasing trend during the same timeframe, falling from 76 days in 2015 to a low of 56 days in 2018. This decrease aligns with the rise in inventory turnover, reflecting quicker inventory cycles. In 2019, however, the processing period increased slightly to 59 days, suggesting a modest slowdown in inventory turnover, consistent with the minor decline in the inventory turnover ratio that year.

Overall Assessment

The data suggests that over the five-year span, the company generally improved its inventory management efficiency, achieving faster inventory turnover and shorter inventory holding periods. Despite some fluctuations in 2017 and 2019, the patterns highlight a focus on optimizing stock levels and enhancing operational efficiency, which may positively impact working capital and profitability.

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

Receivables Turnover

The receivables turnover ratio exhibited significant volatility. It increased sharply from 21.05 in 2015 to a peak of 34.44 in 2016, suggesting more frequent collection of receivables during that year. However, this was followed by a decline to 28.48 in 2017, and a more pronounced decrease in 2018 and 2019, with values of 12.34 and 12.66 respectively. The downward trend in the latter years indicates a reduction in the efficiency of the company's collection processes or potentially looser credit policies.

Average Receivable Collection Period

The average collection period, measured in days, moved inversely to the receivables turnover ratio, as expected. It improved from 17 days in 2015 to a shorter 11 days in 2016, correlating with the peak turnover ratio. Subsequently, the period increased to 13 days in 2017, indicating slower collections. The most significant change occurred in 2018 and 2019, where the collection period approximately doubled to 30 and 29 days respectively, confirming a slowdown in converting receivables to cash.

Overall, the company demonstrated strong receivables management performance early in the period, reaching optimal turnover and collection times in 2016. However, the following years reflected a consistent decline in efficiency, as evidenced by decreasing turnover ratios and increasing collection periods. This may imply challenges in credit control or changes in customer payment behaviour that could impact cash flow and working capital management.

Average Inventory Processing Period

The average inventory processing period exhibits a declining trend from 76 days in 2015 to 58 days in 2016, indicating an improvement in inventory management and faster turnover. Subsequently, the period slightly increased to 62 days in 2017, followed by a decrease to 56 days in 2018. The value then rose marginally to 59 days in 2019. Overall, the data suggests efforts to maintain efficient inventory processing with some fluctuations.

Average Receivable Collection Period

The average receivable collection period demonstrates a decrease from 17 days in 2015 to 11 days in 2016, reflecting enhanced effectiveness in collecting receivables. However, there is a reversal in this trend starting in 2017, where the period increased to 13 days and sharply rose to 30 days in 2018, sustaining a similar level of 29 days in 2019. This pattern indicates challenges in receivables collection efficiency during the latter part of the period analyzed.

Operating Cycle

The operating cycle, representing the total time to turn inventory and receivables into cash, follows a general trend of reduction initially from 93 days in 2015 to 69 days in 2016. It then increases to 75 days in 2017 and continues rising to 86 days in 2018 and 88 days in 2019. This uptrend correlates with the increase in the receivable collection period, suggesting a lengthening cash conversion cycle, which may impact working capital management.

The analysis of the payables-related financial ratios over the five-year period from 2015 to 2019 reveals certain trends in the company's payment behavior towards its suppliers.

Payables Turnover Ratio

The payables turnover ratio shows a declining trend from 4.42 in 2015 to its lowest point of 3.72 in 2017, followed by a recovery to 4.18 in 2018 and a slight increase to 4.2 in 2019. This pattern suggests that the company initially slowed down its payments to suppliers but later accelerated the payment cycle towards the end of the period.

Average Payables Payment Period

Consistent with the trend in the turnover ratio, the average payables payment period increased from 83 days in 2015 to a peak of 98 days in 2017, indicating extended payment terms or slower payments. Subsequently, this period decreased to 87 days in 2018 and remained steady in 2019, suggesting a partial emphasis on quicker payment settlements after 2017.

In summary, the data suggests that between 2015 and 2017, the company lengthened its payables payment period, potentially to optimize cash flow management or negotiate longer credit terms. After 2017, there was a shift towards reducing the payment period, reflecting possibly improved liquidity or strategic changes in working capital management.

Average Inventory Processing Period

The average inventory processing period shows fluctuations over the five-year span. Initially, there is a decrease from 76 days in 2015 to 58 days in 2016, followed by a slight increase to 62 days in 2017. This is succeeded by a decline again to 56 days in 2018, and a modest rise to 59 days in 2019. Overall, the inventory processing period tends to hover in the mid-to-high 50s range after an initial reduction.

Average Receivable Collection Period

The receivable collection period decreases significantly from 17 days in 2015 to 11 days in 2016, indicating improved efficiency in collections. However, from 2017 onwards, there is an upward trend, increasing to 13 days in 2017 and substantially rising to 30 days in 2018, which slightly decreases to 29 days in 2019. This suggests a deterioration in the speed of receivable collections in recent years.

Average Payables Payment Period

The average payables payment period demonstrates a generally increasing trend from 83 days in 2015 to 98 days in 2017, implying extended time taken to pay suppliers. Following 2017, the period decreases to 87 days in 2018 and remains stable at 87 days in 2019, indicating a partial reversal in the lengthening trend.

Cash Conversion Cycle

The cash conversion cycle moves from a positive 10 days in 2015 to negative values of -17 days in 2016 and -23 days in 2017, indicating an improving cash flow position with faster conversion of resources into cash. In 2018, the cycle rises sharply to -1 day and becomes positive at 1 day in 2019, signifying a reduction in efficiency and a near-neutral conversion time. These changes reflect shifts in working capital management effectiveness over the years.