ON Semiconductor Corp. (NASDAQ:ON)

The analysis of the financial turnover ratios and related operational cycle metrics over the observed periods reveals several notable trends and fluctuations.

Inventory Turnover

The inventory turnover ratio started at around 2.88 and exhibited a slight decline over time, dropping steadily from above 2.9 in early 2021 to approximately 2.02 by the first quarter of 2024. This gradual decrease indicates slower inventory movement, suggesting potential challenges in inventory management or shifts in demand.

Receivables Turnover

The receivables turnover ratio demonstrated moderate volatility. Initially around 7.83, the ratio experienced an increase with fluctuations and peaked near 9.89 in mid-2023 before slightly declining to 9.34 at the latest period. Overall, this reflects an improvement in the efficiency of collecting receivables over the timeframe.

Payables Turnover

The payables turnover ratio showed a downward trend from 6.52 to a low near 4.41 between 2019 and mid-2023, before recovering to 6.51 in early 2024. The initial decline suggests slower payment to suppliers, possibly indicating extended credit terms or cash management strategies, with recent figures moving toward quicker payments again.

Working Capital Turnover

The working capital turnover ratio declined considerably from 4.59 early in the period to around 2.03 by early 2024. This sharp decrease suggests reduced efficiency in utilizing working capital to generate sales, signaling potential operational inefficiencies or changes in asset and liability management.

Average Inventory Processing Period

The average inventory processing period increased from about 127 days to 181 days over the observed timeframe. The lengthening in inventory holding days aligns with the lowering inventory turnover ratio, confirming slower inventory movement.

Average Receivable Collection Period

This metric fluctuated moderately between about 37 and 55 days during the period, with a tendency to increase during some quarters but trending toward lower days by the latest observation. This stability corresponds with the receivables turnover ratio trends.

Operating Cycle

The operating cycle lengthened progressively from around 174 days to 220 days, indicating a longer duration from inventory purchase to cash collection. This reflects the combined increase in inventory processing and receivable collection periods.

Average Payables Payment Period

The payables payment period extended from approximately 56 days to peaks near 83 days mid-period before contracting back to around 56 days by early 2024. This suggests strategic adjustments in payables management, with early leniency giving way to faster supplier payments recently.

Cash Conversion Cycle

The cash conversion cycle exhibited an increase from roughly 118 days to 164 days, peaking at 156–164 days in late 2023 and early 2024. This extension indicates a longer time span for the company to convert investments in inventory and receivables back into cash, impacted primarily by the increased inventory holding period and operating cycle.

In summary, the data reveal a trend of lengthening operational cycles with slower inventory turnover and increased inventory holdings, alongside fluctuating but generally stable receivables performance. Payables management appears to oscillate, with initial extensions followed by recent quicker payments. These patterns suggest increasingly extended working capital cycles, resulting in reduced efficiency in the conversion of operational inputs into cash flows over the analyzed periods.

The cost of revenue figures demonstrate a fluctuating trend over the analyzed periods. Initially, there is a slight decrease from US$872,900 thousand in March 2019 to US$839,200 thousand in July 2020. However, costs rise again reaching a peak of US$1,024,300 thousand in July 2021, then generally decline with some volatility to US$1,009,100 thousand by March 2024, indicating variable cost pressures or changes in production volume over time.

Inventory levels show a consistent upward trend throughout the periods. Starting at US$1,225,200 thousand in March 2019, inventories steadily increase each quarter, reaching US$2,147,100 thousand by March 2024. The notable growth in inventories suggests accumulation of stock, possibly due to increased production, cautious supply chain strategies, or slower sales turnover towards later periods.

The inventory turnover ratio exhibits a declining pattern from 2.88 in December 2019 down to 2.02 by March 2024. This decreasing turnover indicates that the company is converting inventory into sales at a slower rate over time, which may reflect higher inventory levels relative to sales volume, potential overstocking, or reduced sales velocity in recent quarters.

Cost of revenue

Fluctuated with periods of decline and increase, peaking in mid-2021 followed by a gradual decrease towards early 2024.

Inventories

Increased steadily over the entire timeframe, nearly doubling from early 2019 to early 2024.

Inventory turnover

Consistently declined from approximately 2.88 in late 2019 to 2.02 by early 2024, indicating slower inventory movement.

The revenue demonstrated a general upward trend from the beginning of the period through late 2022, peaking around the third quarter of 2022 at approximately 2.19 billion US dollars. Following this peak, revenue displayed a notable decline in subsequent quarters, dropping to roughly 1.86 billion US dollars by the first quarter of 2024.

Net receivables exhibited considerable fluctuation over the timeline. Starting near 704 million US dollars, net receivables increased steadily, reaching a high of over 1.13 billion US dollars in mid-2022. After this peak, a contraction occurred, with receivables falling back to around 873 million US dollars by the first quarter of 2024. This movement points to a likely increase in credit sales or slower collections leading up to mid-2022, followed by improved receivables management or reduced sales volume thereafter.

The receivables turnover ratio, starting to be reported from the second quarter of 2020, generally stayed within the range of approximately 6.7 to 9.9 over the periods provided. The ratio peaked at 9.89 in mid-2023, suggesting more efficient collection of receivables during that time. However, there is some variability, with lower turnover values around 6.69 observed in late 2022, indicating slower collection efficiency in that specific timeframe. This variation may reflect seasonal sales patterns, changes in credit policy, or external economic factors affecting customers’ payment behaviors.

Revenue Trends

Steady growth from early 2019 to late 2022, followed by a decline into early 2024.

Net Receivables

Gradual increase paralleling revenue growth up to mid-2022, then a reversal indicative of either tighter credit control or decreased sales volume.

Receivables Turnover Ratio

Variable, with periods of improved efficiency peaking in mid-2023, and some slower collection periods notably in late 2022.

Overall, the company showed solid sales growth with temporarily increasing accounts receivable balances, pointing to an expansion phase possibly accompanied by extended credit terms or slower collections. Recent data indicate a shift toward normalization of receivables levels and a decline in revenue, which may signal market challenges, strategic adjustments, or changing demand conditions. Receivables turnover trends imply fluctuating operational efficiency in managing credit risk and collections.

Cost of Revenue

The cost of revenue exhibited fluctuations over the observed quarters, with a general upward trend from early 2019 through late 2022. Initially, values hovered around $850,000 to $950,000 thousand but saw a notable increase reaching the peak above $1,130,000 thousand in September 2022. Following this peak, the cost declined moderately in the most recent quarters, ending near $1,009,100 thousand by March 2024. This pattern indicates variability in production and operational costs with a peak in late 2022 followed by a moderation phase.

Accounts Payable

Accounts payable demonstrated a progressive increase from early 2019 to the end of 2022, starting around $583,300 thousand and rising steadily to reach a high point of approximately $976,200 thousand in March 2023. After this peak, a decline can be observed, with balances falling back toward $665,800 thousand by March 2024. This upward movement suggests an expanding credit period or increased procurement activity leading into early 2023, followed by a contraction in the subsequent quarters.

Payables Turnover Ratio

The payables turnover ratio showed variability throughout the periods analyzed. Initially available data from December 2019 displayed a turnover ratio of 6.52, increasing to a peak of 7.04 by April 2020. Then, a gradual decline ensued through 2022, reaching a low of 4.41 in December 2022. Early 2023 revealed some recovery, with the ratio climbing again to around 6.51 by March 2024. These dynamics indicate changes in the rate at which payables are settled relative to purchases, with faster payments during early 2020, a slowdown in turnover in 2022, and a subsequent acceleration in payment cycles into 2024.

The analysis of the quarterly data reveals notable fluctuations in working capital and revenue over the observed periods. Working capital demonstrated an overall upward trajectory from early 2019 to the first quarter of 2024. Initially, there was a dip in working capital in the latter quarters of 2019, followed by a pronounced increase during 2020, reaching a peak in late 2022 and early 2023, before experiencing a slight decline and then a subsequent rise toward the end of the period.

Revenue trends showed some variability, with a general increase from 2019 through most of 2021 and into early 2022. However, from mid-2022 onward, revenue exhibited a declining pattern with occasional minor recoveries but remained lower in the latest quarters compared to the peak periods in 2021 and early 2022.

The working capital turnover ratio, available from late 2019 onward, indicates the effectiveness of the company in utilizing its working capital to generate revenue. The ratio experienced a significant decline from the fourth quarter of 2019 to mid-2020, reaching its lowest point. Following this, there was a recovery phase where the ratio improved through 2021, peaking in the middle of that year. Afterward, the ratio generally trended downward from late 2021 onwards, indicating a reduced efficiency in converting working capital into revenue despite the increasing absolute values of working capital.

Working Capital

Experienced variability with an initial decrease in late 2019, followed by a substantial increase in 2020 and continuing growth into early 2023, reaching over double the initial levels observed in 2019.

Some quarters post-2023 show a small decline but maintain relatively high levels compared to 2019.

Revenue

Rose steadily from 2019 through 2021, peaking around the first quarter of 2022.

Subsequent quarters show a general decline with fluctuations, ending at levels lower than the peak and initial years.

Working Capital Turnover Ratio

Sharp decline in early 2020, reaching a minimum value approximately mid-2020, suggesting decreased efficiency in revenue generation from working capital.

Recovery and improvement through 2021, followed by a downward trend in late 2021 through 2023, indicating ongoing challenges in leveraging working capital into revenue efficiently despite increasing working capital.

In summary, the period under review shows the company managing increasing levels of working capital, yet facing challenges in maintaining proportional revenue growth, particularly evidenced by the declining turnover ratio. The efficiency in utilizing working capital to generate revenue has diminished in recent quarters, highlighting a potential area for financial and operational attention.

Inventory Turnover Ratio

The inventory turnover ratio shows a declining trend over the examined periods. Beginning at 2.88 in April 2020, the ratio experiences a gradual decrease with minor fluctuations. It reaches a peak of 2.98 in December 2021 but then continuously declines thereafter, falling to 2.02 by March 2024. This suggests that the frequency with which inventory is sold and replaced has reduced over time.

Average Inventory Processing Period (in days)

The average inventory processing period corresponds inversely with the inventory turnover ratio and shows a clear increasing trend. Starting from 127 days in April 2020, the processing period fluctuates slightly but generally rises, peaking at 181 days in March 2024. This indicates that the time required to process inventory has lengthened, implying slower inventory movement and potential accumulation of stock over recent quarters.

Overall Analysis

The financial data reveal a consistent and steady decline in inventory turnover alongside an increase in the average inventory processing period. This trend suggests decreasing operational efficiency related to inventory management. The reduced turnover ratio, paired with a longer processing period, may reflect challenges in sales velocity or supply chain dynamics, leading to inventory holding for extended durations. These patterns warrant further investigation to identify underlying causes and potential impacts on working capital and liquidity.

The analysis of the receivables turnover ratio indicates a generally positive trend over the observed periods. Starting from a value of 7.83, the ratio experienced some fluctuations with a dip to 6.69 during the mid-2022 period, but subsequently demonstrated a recovery, reaching a peak of 9.89 before slightly moderating to 9.34 by March 29, 2024. This pattern suggests an overall improvement in the efficiency of collecting receivables, indicating a more rapid conversion of receivables into cash in the later periods.

Correspondingly, the average receivable collection period, expressed in days, displays an inverse relationship to the receivables turnover ratio as expected. The collection period initially decreased from 47 days to a low of 39 days around the early part of 2023, reflecting improved collection efficiency. However, there was a notable increase to 55 days in mid-2022, which temporarily signaled slower collections. After this spike, the average collection period steadily declined again, reaching 39 days by the latest reporting date, reinforcing the observation of enhanced receivables management efficiency in the most recent quarters.

Receivables Turnover Ratio Trends

Started at 7.83, fluctuated with a low of 6.69 during mid-2022, peaked at 9.89 around early 2023, and ended at 9.34 in early 2024.

Average Receivable Collection Period Trends

Varied between 39 and 55 days, with a notable increase to 55 days in mid-2022, followed by a decrease to 39 days by early 2024.

Insights

The inverse correlation between the two key metrics indicates that the company improved its efficiency in managing receivables over the analyzed period. Periods of increased collection days correspond to lower turnover ratios, signifying slower cash inflows from receivables. The recovery in turnover and reduction in collection periods in recent quarters suggest more effective credit and collection policies.

The average inventory processing period demonstrates a generally increasing trend over the observed quarterly periods. Starting from 127 days in early 2020, it fluctuates slightly but rises to 181 days by the first quarter of 2024. Notable increments occur towards the end of 2022 and throughout 2023, indicating a lengthening in the time inventory remains in the system before processing.

The average receivable collection period fluctuates within a narrower range compared to inventory processing. The period begins near 47 days in early 2020 and exhibits intermittent rises and declines through subsequent quarters. The collection period peaks at 55 days in the third quarter of 2022, followed by a general decline to 39 days by the first quarter of 2024, signifying an improvement in receivables turnover towards the latest periods.

The operating cycle, which combines inventory processing and receivable collection periods, reflects the trends observed in its components. It remains relatively stable around mid-170 days initially, increasing steadily to surpass 220 days by the end of 2023. The prolonged operating cycle suggests that the overall cash conversion cycle has lengthened substantially over the analyzed timeframe. This reflects the combined effect of increasing inventory processing time and variable but generally improving receivable collection efficiency.

Inventory Processing Period

Consistently increased from 127 days to 181 days over four years, indicating slower inventory turnover.

Receivable Collection Period

Varied between 39 and 55 days, with recent improvements reducing the period to 39 days.

Operating Cycle

Extended from approximately 174 days to 220 days, driven primarily by the elongation in inventory processing despite improved receivable collection.

The payables turnover ratio demonstrates a noticeable downward trend over the observed periods, beginning at 6.52 in the first reported quarter and moving to a low in the range of approximately 4.41 to 4.81 in the quarters around 2022 and early 2023. Toward the latest quarters, there is a rebound with the ratio increasing again to 6.51 as of March 29, 2024. This pattern suggests that the frequency with which the company settles its payables decreased during the middle periods but improved more recently, indicating a possible enhancement in payment efficiency or changes in credit terms with suppliers.

Correspondingly, the average payables payment period, expressed in days, exhibits an inverse pattern relative to the payables turnover. It increases from 56 days initially to a peak around 83 days in March 2023, signifying a lengthening of the payment cycle and possibly a strategic extension of payables duration or cash flow management adjustments. Following this peak, the payment period shortens significantly back to 56 days by March 2024, reflecting quicker payment to suppliers, which aligns with the rebound seen in the turnover ratio.

Payables Turnover

Started at 6.52, declined gradually to around 4.41-4.81 from mid-2021 through early 2023, followed by an increase to 6.51 by the first quarter of 2024.

Average Payables Payment Period

Initiated at 56 days, increased steadily to approximately 83 days by early 2023, then decreased back to 56 days in March 2024.

Overall, the data suggests the company expanded its payables terms or delayed payments in the period leading up to 2023 but recently reversed this trend. This shift could reflect improved liquidity conditions or a strategic decision to optimize supplier relationships and working capital management. The inverse correlation between the turnover ratio and payment period is consistent with standard financial practices, indicating reliable internal controls over payables management during the analyzed timeframe.

Average inventory processing period

The average inventory processing period shows an increasing trend over the observed quarters. Starting from 127 days in April 2020, the period gradually extended to 181 days by March 2024. There was a steady rise with minor fluctuations, peaking notably from mid-2022 onwards, indicating potentially slower inventory turnover or increased stockholding duration in recent quarters.

Average receivable collection period

This metric experienced some variability but generally maintained a range between 37 and 55 days. After a peak of 55 days in September 2022, it decreased sharply to 39 days by March 2023 and remained stable around 39-42 days through March 2024. This suggests an improvement in the efficiency of collecting receivables in the most recent periods following a temporary increase.

Average payables payment period

The payables payment period increased from 56 days in April 2020 to a peak of 83 days in March 2023, reflecting an extended time taken to settle payables. However, following this peak, the period shortened considerably to 56 days by March 2024, indicating a return to faster payments or potentially improved supplier relationships or cash management strategies.

Cash conversion cycle

The cash conversion cycle exhibited a general rising trend, starting from 118 days in April 2020, increasing to 164 days by March 2024 with fluctuations along the way. The cycle decreased after peaking around December 2022 and then surged again towards the end of the observation period. These movements reflect the combined effects of inventory, receivables, and payables periods, revealing increasing working capital requirements and potential strain on liquidity over time.