Microchip Technology Inc. (NASDAQ:MCHP)

Inventory Turnover

The inventory turnover ratio shows a declining trend over the analyzed periods, decreasing from 3.96 in 2017 to 2.78 in 2022. This indicates a slower inventory movement over time, potentially suggesting increased inventory holding or reduced sales efficiency.

Receivables Turnover

Receivables turnover decreased from 7.12 in 2017 to a low of 5.45 in 2021, followed by an improvement to 6.36 in 2022. This pattern points to initially increasing collection periods, which slightly reversed in the latest period.

Payables Turnover

There is a consistent decline in payables turnover from 11.06 in 2017 to 6.88 in 2022, indicating the company is taking longer to pay its suppliers. This suggests an extension in payment terms or changes in working capital management.

Working Capital Turnover

Working capital turnover shows variability with 2.13 in 2017, rising to 2.97 in 2018, then a significant peak to 9.1 in 2020, and settling at 6.47 in 2022. These fluctuations reflect considerable changes in how efficiently the company utilizes its working capital over the years.

Average Inventory Processing Period

The average inventory processing period has gradually increased from 92 days in 2017 to 132 days in 2022, illustrating growing duration in inventory holding, which aligns with the decreasing inventory turnover ratio.

Average Receivable Collection Period

The receivable collection period extends from 51 days in 2017 to a peak of 67 days in 2021, before shortening to 57 days in 2022. This indicates the company experienced slower collections that began to improve in the last period.

Operating Cycle

The operating cycle lengthens from 143 days in 2017 to around 189 days in 2022, signifying that the total time between inventory acquisition and cash receipt from sales has increased substantially over time.

Average Payables Payment Period

The payables payment period extends steadily from 33 days in 2017 up to 53 days in 2022, further confirming the trend of longer payment durations to suppliers.

Cash Conversion Cycle

The cash conversion cycle shows an increase from 110 days in 2017 to a high of 144 days in 2020, followed by a slight reduction to 136 days in 2022. This suggests a lengthening cash-to-cash cycle which has somewhat improved in recent years but remains elevated compared to the initial period.

The data reveals several noteworthy trends in the cost of sales, inventories, and inventory turnover ratios over the six-year period ending March 31, 2022.

Cost of Sales

The cost of sales fluctuated with an overall upward trend. Initially, there was a slight decline from approximately 1.65 billion USD in 2017 to 1.56 billion USD in 2018. This was followed by a substantial increase to nearly 2.42 billion USD in 2019. A decrease occurred in 2020 to about 2.03 billion USD, then a modest rise in 2021, and a significant jump to approximately 2.37 billion USD in 2022. This pattern indicates variability likely influenced by operational, market, or supply factors increasing substantially towards the end of the period.

Inventories

Inventories showed a consistent ascending trend overall, reflecting accumulation of stock or potentially increased production capacity and purchases. Starting at approximately 417 million USD in 2017, inventories rose steadily, peaking at over 854 million USD in 2022. Notably, the inventory levels slightly decreased between 2019 and 2021, from about 712 million USD to 665 million USD, before rising sharply again in 2022. This suggests strategic inventory management adjustments or changing demand expectations during this period.

Inventory Turnover

The inventory turnover ratio exhibited a decreasing trend over the years, implying that inventory was turning over less frequently. The ratio declined from a high of 3.96 in 2017 to a low of 2.78 in 2022. There were minor fluctuations during the mid-period years, with a temporary increase in 2021 to 3.1 from a low of 2.96 in 2020. The overall decline suggests a slower rate of inventory movement relative to sales, which may reflect either increased inventory holding or slower sales velocity.

In summary, the financial data indicates the company faced fluctuations in cost of sales and managed to increase inventory levels significantly, while experiencing a gradual decrease in inventory turnover efficiency. The interplay between these factors could suggest evolving operational strategies or market conditions impacting inventory management and cost structures over the examined period.

Net Sales

Over the period from March 31, 2017, to March 31, 2022, net sales demonstrated a consistent upward trend with notable acceleration in the later years. The values increased from approximately 3.41 billion US dollars in 2017 to about 6.82 billion US dollars in 2022, representing nearly a 100% rise in sales revenue over five years. This growth was somewhat steady between 2017 and 2019, with a significant jump in 2019. While sales dipped slightly in 2020, possibly reflecting external economic pressures, the trend quickly resumed an upward trajectory, culminating in the highest recorded sales in 2022.

Accounts Receivable, Net

The accounts receivable, net balance also showed a consistent increasing pattern during the same timeframe, rising from approximately 478 million US dollars in 2017 to about 1.07 billion US dollars by 2022. This increase corresponds with the sales growth, indicating a larger volume of credit-based sales or extended credit terms. The rise in receivables was more pronounced from 2018 onwards, with steady growth each year, which could suggest a strategic shift in customer credit management or changing payment behaviors among customers.

Receivables Turnover Ratio

The receivables turnover ratio exhibited a decreasing trend from 7.12 in 2017 to a low point of 5.45 in 2021, followed by a partial recovery to 6.36 in 2022. A declining ratio typically indicates slower collection cycles or increasing outstanding receivables relative to sales. Despite the increased sales volume, the company was initially less efficient in converting receivables to cash. However, the improvement observed in 2022 may indicate enhanced collection efforts or improved payment terms, contributing positively to liquidity management.

Cost of Sales

The cost of sales displayed fluctuations over the periods analyzed. Initially, the cost was approximately $1.65 billion in 2017 and remained relatively stable with a slight decrease to about $1.56 billion in 2018. However, a significant increase occurred in 2019, with costs rising sharply to approximately $2.42 billion. Following this peak, costs decreased to roughly $2.03 billion in 2020 before increasing again to $2.06 billion in 2021 and further to approximately $2.37 billion in 2022. Overall, the trend indicates an upward movement in cost of sales after 2018, with notable volatility, especially in 2019.

Accounts Payable

Accounts payable showed a persistent upward trend throughout the time frame. Starting at $149.2 million in 2017, the value slightly declined to $144.1 million in 2018 before escalating considerably to $226.4 million in 2019. This increasing trajectory continued steadily thereafter with accounts payable reaching $246.8 million in 2020, $292.4 million in 2021, and peaking at $344.7 million in 2022. The consistent increase suggests growing liabilities to suppliers or extended payment terms over time.

Payables Turnover Ratio

The payables turnover ratio demonstrated a consistent decline over the six-year span. Starting from 11.06 in 2017, it slightly decreased to 10.83 in 2018 and 10.68 in 2019, followed by a more pronounced drop to 8.23 in 2020. The downward trend intensified with ratios dropping to 7.04 in 2021 and 6.88 in 2022. This decrease indicates the company is taking longer to pay its suppliers, which may reflect changes in payment policies or cash flow management techniques.

Working Capital

The working capital figures exhibit notable volatility over the analyzed periods. Starting from a positive value of approximately 1.6 billion USD in 2017, there is a moderate decline to about 1.34 billion USD in 2018. In 2019, the working capital value shifts sharply into negative territory at approximately -160 million USD, indicating potential liquidity challenges or increased current liabilities relative to current assets. The subsequent year marks a recovery with the working capital improving to roughly 580 million USD. However, in 2021, the working capital decreases again to a negative value near -264 million USD before rebounding significantly to approximately 1.05 billion USD in 2022. Overall, the working capital trend is characterized by considerable fluctuations, suggesting inconsistent short-term financial positioning over the six-year period.

Net Sales

Net sales demonstrate a consistent upward trajectory throughout the period. Beginning at approximately 3.41 billion USD in 2017, the net sales rise steadily each year except for a slight decrease in 2020, where sales marginally drop from about 5.35 billion USD the previous year to 5.27 billion USD. This minor dip coincides with broader economic disruptions observed during that time frame in many industries. Following this, net sales resume growth, reaching approximately 5.44 billion USD in 2021 and then making a more pronounced increase to roughly 6.82 billion USD by 2022. The overall pattern indicates a strong and generally positive sales performance with resilience in the face of a downturn in 2020.

Working Capital Turnover

The working capital turnover ratio shows irregularities in reporting, with missing data for some years, but observable values suggest variability. The ratio increases from 2.13 in 2017 to 2.97 in 2018, reflecting improved efficiency in utilizing working capital to generate sales. There is no data available for 2019, hindering continuous trend analysis. In 2020, the ratio spikes significantly to 9.1, indicating an exceptionally high turnover, potentially due to the low or negative working capital figure combined with sustained sales levels. The ratio for 2021 is missing, while in 2022, the turnover remains elevated at 6.47, still above the earlier years' levels. This suggests the company has been achieving higher sales volumes relative to its working capital base, albeit against a background of fluctuating working capital values.

Overall Insights

The data reflects a company with growing sales performance but inconsistent short-term financial stability. The significant fluctuations in working capital may point to changes in asset management, liability structures, or operational cycles. Meanwhile, the high working capital turnover ratios in recent years imply increasing efficiency or heightened sales generation relative to working capital levels. The combination of these factors suggests a dynamic operational environment that warrants close monitoring of liquidity and working capital management despite strong revenue growth.

Inventory Turnover

The inventory turnover ratio exhibited a generally declining trend from fiscal year 2017 through 2022. Starting at 3.96 in 2017, the ratio decreased to 3.28 in 2018, followed by a slight rise to 3.4 in 2019. Afterward, the ratio continued its downward trajectory, reaching 2.96 in 2020, a modest increase to 3.1 in 2021, and then a decline to 2.78 in 2022. This overall decrease suggests that the company's efficiency in managing and selling inventory has weakened over the observed period.

Average Inventory Processing Period

The average inventory processing period demonstrates an increasing trend throughout the six-year span. Beginning at 92 days in 2017, there was a rise to 111 days in 2018, followed by a slight reduction to 107 days in 2019. Subsequently, the period extended to 123 days in 2020, slightly decreased to 118 days in 2021, and finally increased to its highest point at 132 days in 2022. This elongation indicates that inventories are remaining on hand for longer durations before being sold or processed, which corresponds with the decreasing inventory turnover ratio.

Overall Insight

The inverse relationship between the inventory turnover ratio and the average inventory processing period reflects a decline in inventory management efficiency over the years. An increasing number of days to process inventory combined with a decreasing turnover ratio likely points to slower inventory movement, which may impact working capital and operational performance. Monitoring and addressing these trends may be critical to improving asset utilization moving forward.

Receivables Turnover

The receivables turnover ratio exhibits a declining trend between 2017 and 2021, decreasing from 7.12 to 5.45. This suggests a gradual reduction in the efficiency of collecting receivables. However, in 2022, there is a noticeable improvement as the ratio increases to 6.36, indicating a potential recovery in collection effectiveness.

Average Receivable Collection Period

Correspondingly, the average receivable collection period demonstrates an increasing trend over the same period from 51 days in 2017 to 67 days in 2021. This indicates that the company took progressively longer to collect its receivables over these years. Notably, in 2022, the collection period shortens to 57 days, which aligns with the improvement seen in the receivables turnover ratio.

Overall Insights

The data reflects a period of declining efficiency in receivables management from 2017 through 2021, as evidenced by decreasing turnover ratios and increasing collection days. The reversal of these trends in 2022 suggests that the company implemented measures leading to better receivables collection performance.

Average Inventory Processing Period

The average inventory processing period shows an increasing trend over the six-year span. Starting at 92 days in 2017, it rose to 111 days in 2018, slightly decreased to 107 days in 2019, and then increased steadily to 123 days in 2020, followed by a minor decrease to 118 days in 2021. The most recent figure for 2022 indicates a further increase to 132 days. This suggests a lengthening in the time inventory remains in stock before being processed, which could imply challenges in inventory turnover or changes in inventory management practices.

Average Receivable Collection Period

The average receivable collection period also experienced fluctuations but generally shows an upward movement between 2017 and 2021, increasing from 51 days to 67 days. In 2022, this period decreased notably to 57 days. The rise over these years could indicate a slower collection of receivables, potentially affecting cash flow. The reduction in the last year suggests improvement in receivables management or collection efficiency.

Operating Cycle

The operating cycle, which sums the inventory processing and receivable collection periods, consistently increased from 143 days in 2017 to 189 days in 2022. It rose sharply from 143 days to 163 days in 2018, and then gradually grew to 167 days in 2019, followed by more significant increases to 188 days in 2020 and slight adjustments in 2021 and 2022. This indicates an overall lengthening in the time taken from purchasing inventory to collecting cash from sales, potentially impacting liquidity and working capital efficiency.

Payables Turnover

The payables turnover ratio demonstrates a declining trend over the six-year period. Starting at 11.06 in 2017, the ratio gradually decreases to 6.88 by 2022. Notably, the decrease is more pronounced from 2019 onwards, suggesting a slowing rate at which the company is paying off its suppliers.

Average Payables Payment Period

The average payables payment period exhibits an increasing trend across the same timeframe. Beginning at 33 days in 2017, the period remains relatively stable until 2019, with slight increases from 33 to 34 days. However, from 2020, there is a distinct and consistent increase, reaching 53 days by 2022. This suggests that the company has been extending its payment cycle to suppliers, potentially as a cash management strategy or due to changes in payment terms.

Overall Analysis

The inverse relationship between the payables turnover ratio and the average payment period is evident and aligns with expectations, as a lower turnover ratio corresponds to a higher number of days payables are outstanding. The shift from 2019 onward indicates a significant change in payment practices or operational conditions, with the company taking longer to pay its suppliers. This could reflect broader changes in liquidity management, supplier negotiations, or economic factors impacting payment capabilities.

Inventory Processing Period

The average inventory processing period exhibited an increasing trend over the six-year span. Starting at 92 days in 2017, it rose to 111 days in 2018, slightly decreased to 107 days in 2019, then increased again to 123 days in 2020, decreased marginally to 118 days in 2021, and finally reached 132 days in 2022. Overall, this indicates a lengthening duration in converting inventory into sales over time.

Receivable Collection Period

The average receivable collection period showed a general increase from 51 days in 2017 up to 67 days by 2021. This upward trend was interrupted in 2022 when the period decreased to 57 days. The increasing trend prior to 2022 suggests a gradual slowing in the rate at which receivables are collected, whereas the decline in 2022 indicates some improvement in collection efficiency.

Payables Payment Period

The average payables payment period gradually extended from 33 days in 2017 to 53 days in 2022. The payment period remained stable at 33-34 days through 2017 to 2019, then increased more noticeably to 44 days in 2020, 52 days in 2021, and slightly further to 53 days in 2022. This pattern suggests a deliberate lengthening of the time taken to pay suppliers during recent years.

Cash Conversion Cycle

The cash conversion cycle increased from 110 days in 2017 to a peak of 144 days in 2020, followed by a decrease to 133 days in 2021, and then a slight rise to 136 days in 2022. This indicates that the overall operating liquidity tied in the cycle of inventory, receivables, and payables generally increased over the period, peaking in 2020, despite some fluctuations afterward.