Lam Research Corp. (NASDAQ:LRCX)

The financial data exhibits notable trends across various operational efficiency metrics over the six-year period. A detailed assessment of turnover ratios, periods, and cycle durations reveals shifts in the company's asset management and liquidity dynamics.

Inventory Turnover and Processing Period

The inventory turnover ratio demonstrates a consistent decline from 3.44 in mid-2019 to 1.86 in mid-2024, indicating a gradual reduction in the frequency with which inventory is sold and replenished. Correspondingly, the average inventory processing period extended significantly from 106 days to 196 days, reflecting a lengthening duration of inventory holding. This trend suggests potential slowing in inventory movement or accumulation of stock over time.

Receivables Turnover and Collection Period

Receivables turnover decreased from 6.63 in 2019 to a low of 3.99 in 2022, followed by a recovery to approximately 5.92 by 2024. The average receivable collection period inversely mirrors this trend, beginning at 55 days, peaking at 91 days in 2022, and then contracting to around 62 days. This indicates that while there was a period of slower receivables collection, recent years show improved efficiency in collecting outstanding payments.

Payables Turnover and Payment Period

The payables turnover ratio fluctuated considerably, declining from 14.06 in 2019 to roughly 9.2-9.4 between 2020 and 2022, then spiking to 20.5 in 2023 before falling back to 12.79 in 2024. The average payables payment period increased from 26 days in 2019 to around 39-40 days during 2020-2022, drastically shortened to 18 days in 2023, and rose again to 29 days in 2024. These variations suggest changing payment policies or supplier negotiation dynamics, with a notable acceleration in payments during 2023.

Working Capital Turnover

Working capital turnover experienced fluctuations, starting at 1.56 in 2019, dipping to 1.31 in 2020, peaking at 2.23 in 2022, then reducing to 1.74 in 2024. This pattern indicates that efficiency in utilizing working capital to generate sales has varied, with the highest productivity observed in 2022.

Operating Cycle and Cash Conversion Cycle

The operating cycle expanded steadily from 161 days in 2019 to 258 days by 2024. Similarly, the cash conversion cycle lengthened from 135 days to 229 days over the same timeframe. These growing durations denote increased time between cash outflows for inventory acquisition and cash inflows from receivables collection, implying a gradual decline in overall liquidity efficiency and slower cash recovery from operations.

In summary, the data reveals a pattern of declining inventory turnover and extended holding periods, combined with initial deterioration but subsequent improvement in receivable collection. Payable management shows swings indicative of changing payment practices. The net effect is a lengthening of the operating and cash conversion cycles, highlighting a decrease in operational efficiency and cash flow velocity over the period analyzed.

Cost of Goods Sold

The cost of goods sold experienced a rising trend from 2019 to 2023, increasing from approximately 5.30 billion USD to nearly 9.65 billion USD. However, in 2024, there was a notable decline to around 7.85 billion USD. This suggests that after a period of growth in production or sales volume, costs contracted in the most recent year.

Inventories

Inventories showed a steady and significant increase throughout the period, rising from about 1.54 billion USD in 2019 to a peak of roughly 4.82 billion USD in 2023. In 2024, inventories decreased moderately to approximately 4.22 billion USD. This pattern indicates an accumulation of inventory over time, with a slight reduction in the last year.

Inventory Turnover Ratio

The inventory turnover ratio declined consistently over the six-year period, starting from 3.44 in 2019 down to 1.86 in 2024. This continuous decrease implies that inventory was being sold or used more slowly relative to prior years, potentially indicating slower sales or overstocking.

Revenue Trend

The revenue shows a rising trend from 2019 to 2023, beginning at approximately 9.65 billion USD in 2019 and peaking at around 17.43 billion USD in 2023. However, there is a noticeable downturn in 2024, with revenue declining to roughly 14.91 billion USD. This indicates a period of overall growth followed by a recent contraction in sales or service income.

Accounts Receivable, Net

Accounts receivable, net of allowances, increased significantly from 1.46 billion USD in 2019 to a peak of 4.31 billion USD in 2022. Subsequently, the figure decreased to 2.82 billion USD in 2023 and further to 2.52 billion USD in 2024. The sharp increase until 2022 may reflect greater sales volume or extended credit terms, with the decline in later years possibly denoting tighter credit management or lower sales on credit.

Receivables Turnover Ratio

The receivables turnover ratio decreased from 6.63 in 2019 to a low of 3.99 in 2022, reflecting a slowing in the collection of receivables relative to net sales. Thereafter, it improved to 6.17 in 2023 and then slightly decreased to 5.92 in 2024. The lower turnover ratio during the peak receivables period supports the inference of longer collection cycles or credit extension. The subsequent improvement suggests better collection efficiency or changing credit policies, though it remains below the initial 2019 high.

Overall Analysis

The data reflects a growth phase in revenue accompanied by increasing accounts receivable and a decreasing receivables turnover ratio up to 2022, indicating potential liquidity risks from slower collections. Following this, revenue declined markedly and accounts receivable decreased, with a partial recovery in turnover ratio, which may imply a strategic shift toward improved working capital management or changing market conditions. Continuous monitoring of collection efficiency and revenue trends is advisable given these fluctuations.

Cost of Goods Sold (COGS)

The cost of goods sold exhibited a generally increasing trend from June 2019 through June 2023, rising from approximately 5.3 billion US dollars to over 9.6 billion US dollars. This represents a significant increase of about 82% over four years. However, in the most recent period ending June 2024, there was a notable decline to around 7.85 billion US dollars, indicating a reduction of approximately 18.6% relative to the previous year.

Trade Accounts Payable

The value of trade accounts payable showed a fluctuating pattern over the observed periods. From June 2019 to June 2022, the figure increased steadily from around 376.6 million to just over 1 billion US dollars, indicating an expansion in short-term obligations to suppliers. This was followed by a significant decrease in June 2023 to approximately 470.7 million US dollars, before rising again to about 614 million US dollars in June 2024.

Payables Turnover Ratio

The payables turnover ratio decreased from 14.06 in June 2019 to a low range around 9.2–9.4 in the subsequent three years, suggesting that the company was taking longer to pay its suppliers during this period. A sharp increase to 20.5 was observed in June 2023, indicating much faster payment cycles, which could imply improved liquidity management or a strategic change in payment policies. This ratio then declined to 12.79 in June 2024, moving closer to the earlier levels but still above the low range seen between 2020 and 2022.

Summary of Trends

Overall, the data suggests that the company experienced growth in cost of goods sold up to 2023, followed by a contraction in the latest year. Trade accounts payable trends indicate variability in the company's supplier obligations, with increased payables until 2022 and a subsequent decrease and partial recovery. The payables turnover ratio reflects a period of slower payments from 2020 to 2022, a sudden acceleration in 2023, and a moderate slowing in 2024. These patterns may reflect underlying operational shifts, changes in supplier relations, or liquidity management strategies over time.

Working Capital

The working capital shows an overall upward trend from June 30, 2019, to June 25, 2023, increasing from approximately 6.19 billion to 9.04 billion US dollars. However, there is a slight decline in the last reported period, June 30, 2024, where it amounts to about 8.54 billion US dollars. This pattern suggests growth in available short-term assets over the years, with a recent decrease indicating possible changes in operational or liquidity management.

Revenue

Revenue demonstrates significant growth over the reported periods, starting at approximately 9.65 billion US dollars in 2019 and peaking at around 17.43 billion US dollars in June 25, 2023. The revenue growth indicates strong sales performance and business expansion. Nevertheless, the most recent figure for June 30, 2024, shows a decline to about 14.91 billion US dollars, which may reflect market fluctuations, demand shifts, or other external factors affecting revenue generation.

Working Capital Turnover

The working capital turnover ratio fluctuates notably across the periods. Initially, it decreases from 1.56 in 2019 to 1.31 in 2020, followed by an increase to a peak of 2.23 in 2022. Afterward, the ratio declines again to 1.93 in 2023 and further to 1.74 in 2024. These changes indicate varying efficiency in using working capital to generate revenue; the peak suggests a period of optimized resource utilization, while the subsequent reductions imply a relative decrease in efficiency or changes in working capital or sales structure.

Summary

The overall analysis shows that while the company experienced growth in working capital and revenue over several years, the most recent year exhibits a decline in both areas. The working capital turnover ratio reflects fluctuating efficiency in using working capital to support sales. The recent downward trend in turnover and revenue, alongside a reduction in working capital, may warrant further investigation into operational effectiveness and market conditions.

Inventory Turnover

The inventory turnover ratio demonstrates a declining trend over the observed periods. It decreases from 3.44 in June 2019 to 1.86 in June 2024. This suggests that the frequency at which the company sells and replaces its inventory has slowed down progressively, indicating a lower efficiency in inventory management or potentially a buildup in stock levels relative to sales.

Average Inventory Processing Period

Conversely, the average inventory processing period, measured in days, shows a consistent increase throughout the same timeframe. It rises from 106 days in June 2019 to 196 days in June 2024. This lengthening period implies that inventory remains in storage for longer durations before being sold, highlighting a potential issue with slower inventory movement or reduced demand.

Overall Analysis

The inverse relationship observed between the inventory turnover ratio and the average inventory processing period is typical, as a decrease in turnover aligns with an increase in days inventory is held. The data indicates a clear shift towards slower inventory turnover and longer holding periods, which may impact liquidity and operational efficiency, warranting further investigation into underlying causes such as changes in sales volume, supply chain disruptions, or inventory management policies.

Receivables Turnover

The receivables turnover ratio exhibits notable fluctuations over the examined periods. It started at 6.63 in mid-2019, indicating a relatively high efficiency in collecting receivables. However, a significant decline followed, reaching a low of 3.99 by mid-2022, which suggests a deterioration in receivables management or a lengthening of credit terms. Subsequently, there was a recovery to 6.17 in mid-2023, followed by a slight decrease to 5.92 in mid-2024. Overall, these movements reflect variability in how quickly the company collects its accounts receivable, with a notable dip before partial recovery.

Average Receivable Collection Period

The average receivable collection period shows a generally inverse trend compared to the receivables turnover. Starting at 55 days in mid-2019, it increased significantly to 76 days in mid-2020 and maintained that level into mid-2021. The lengthening continued, peaking at 91 days in mid-2022, indicating that it took longer on average to collect receivables during this period. This trend reversed somewhat, dropping to 59 days in mid-2023 and slightly rising to 62 days in mid-2024. The data suggest a period of extended credit or slower collections between 2020 and 2022, followed by an improvement in collection efficiency afterward.

Insights

The fluctuations in these ratios together suggest variability in the company's credit management and cash collection efficiency. The period between 2020 and 2022 seems to have posed challenges, with slower collections and a lower turnover ratio, potentially impacting cash flow. The improvement in the most recent years signals corrective actions or favorable changes in customer payment behavior. Nevertheless, the slight increase in collection days in the latest period indicates a need for continued vigilance in receivables management.

Average Inventory Processing Period

The average inventory processing period has experienced a notable upward trend over the analyzed years. Starting at 106 days in mid-2019, this duration rose steadily each year, reaching 196 days by mid-2024. This increase suggests that inventory remains longer within the company's operations before being processed or sold, implying potential challenges in inventory turnover efficiency or changes in inventory management strategies.

Average Receivable Collection Period

The average receivable collection period showed variability but remained relatively stable over the period. It increased from 55 days in 2019 to a peak of 91 days in 2022, indicating a longer time to collect payments. However, there was a marked improvement afterward, with the period decreasing to 59 days in 2023 before slightly increasing to 62 days in 2024. This fluctuation suggests periods of slower collections possibly due to customer payment behavior or credit policy adjustments, followed by efforts to improve receivables management.

Operating Cycle

The operating cycle, calculated as the sum of inventory processing and receivable collection periods, showed a consistent increase over the years. It expanded from 161 days in 2019 to 258 days in 2024. The rising operating cycle duration reflects the combined effect of longer inventory holding times and fluctuating receivable collection periods, indicating a lengthening of the overall cash conversion process. This extension may have implications for working capital management and liquidity considerations.

Payables Turnover

The payables turnover ratio exhibits significant fluctuations throughout the analyzed periods. Initially, the ratio decreased sharply from 14.06 in mid-2019 to 9.18 in mid-2020, indicating a slower rate of paying off suppliers. It remained relatively stable around 9.2 to 9.4 between 2020 and 2022. However, there was a notable spike to 20.5 in mid-2023, suggesting a substantial acceleration in payables turnover during that year. This was followed by a decline to 12.79 by mid-2024, pointing to a moderation in the payment pace, yet still above the levels observed from 2020 to 2022.

Average Payables Payment Period

The average payables payment period, measured in days, moves inversely to the payables turnover ratio as would be expected. It lengthened significantly from 26 days in mid-2019 to 40 days in mid-2020 and remained stable at around 39 days until mid-2022. Then, a sharp reduction occurred in mid-2023, reaching 18 days, indicating a much quicker payment cycle. Subsequently, the payment period increased again to 29 days in mid-2024, which aligns with the observed moderation in payables turnover ratio during the same period.

Summary Insights

Overall, the data reveals a dynamic pattern in the company's management of payables. The extended payment periods during 2020 to 2022 suggest a strategy of delaying payments, possibly for cash flow optimization or due to external financial conditions. The abrupt shift in 2023 to a much faster payment cycle indicates a change in working capital management or supplier relationship strategy, potentially reflecting increased liquidity or altered credit terms. The partial reversion in 2024 suggests a balancing approach between aggressive payment and maintaining some payment flexibility.

Inventory Processing Period

The average inventory processing period has experienced a consistent upward trend over the six-year span, increasing from 106 days in mid-2019 to 196 days by mid-2024. This indicates that inventory remains in stock for a longer duration before being processed or sold, suggesting a potential buildup of inventory or slower turnover rates.

Receivable Collection Period

The average receivable collection period fluctuated over the years, initially rising sharply from 55 days in 2019 to 76 days in 2020 and maintaining that level in 2021. It then increased further to 91 days in 2022 before noticeably decreasing to 59 days in 2023 and slightly increasing to 62 days in 2024. This pattern may reflect variability in credit policies or customer payment behaviors, with a recent improvement in collection efficiency following a peak in 2022.

Payables Payment Period

The average payables payment period showed growth from 26 days in 2019 to around 39-40 days in 2020-2022, indicating the company took longer to pay its suppliers during this period. However, there was a significant decrease to 18 days in 2023, suggesting faster payments, followed by a partial increase to 29 days in 2024. This volatility might reflect strategic adjustments in supplier payment terms or cash management practices.

Cash Conversion Cycle

The cash conversion cycle, which measures the overall efficiency of the company’s working capital management, showed a continuous upward trend from 135 days in 2019 to 229 days in 2024. This extension implies that the company is taking longer to convert its investments in inventory and receivables back into cash, largely driven by the rising inventory processing period and fluctuating receivables and payables periods. The increasing cycle length could indicate growing working capital requirements and potentially reduced liquidity efficiency.