Ross Stores Inc. (NASDAQ:ROST)

The analysis of the financial ratios over the six-year period reveals several noteworthy trends relating to operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio remained relatively stable, ranging from 6.06 to a peak of 6.52 in 2021 before returning to 6.06 in 2022. This indicates consistent efficiency in inventory management with minor fluctuations over time.

Receivables Turnover

There is a declining trend in the receivables turnover ratio from 171.21 in 2017 to a low of 108.91 in 2021, reflecting a slower collection of receivables. However, the ratio rebounded to 158.63 in 2022, signaling a potential improvement in credit collection practices.

Payables Turnover

The payables turnover ratio decreased significantly from around 9.0 in earlier years to 4.36 in 2021, followed by a moderate increase to 5.78 in 2022. This suggests that the company extended its payment period to suppliers notably in 2021 but began to shorten it again in the subsequent year.

Working Capital Turnover

Working capital turnover exhibited considerable volatility, peaking sharply at 21.94 in 2020, followed by a steep decline to 4.6 in 2021 and a slight recovery to 5.81 in 2022. Such variation indicates fluctuations in the efficiency of using working capital to generate sales during these years.

Average Inventory Processing Period

The days inventory held decreased gradually from 60 days to a low of 56 days in 2021 but returned to 60 days in 2022. This points to a relatively stable inventory holding period with a minor improvement and subsequent normalization.

Average Receivable Collection Period

The receivable collection period was steady at 2 days for most years, with a slight increase to 3 days in 2021 before reverting to 2 days in 2022, reinforcing minimal changes in credit collection duration over the period.

Operating Cycle

The operating cycle decreased slightly from 62 days in 2017 to 59 days in 2021, then increased back to 62 days in 2022, indicating minor fluctuations in the total time span from inventory acquisition to cash collection.

Average Payables Payment Period

The average payables payment period remained steady around 40 days from 2017 through 2020, then extended sharply to 84 days in 2021 before decreasing to 63 days in 2022. This suggests a strategic lengthening of payment terms in 2021 followed by some tightening in 2022.

Cash Conversion Cycle

The cash conversion cycle trended downward from 21 days in 2017 to a negative value of -25 days in 2021, before rising to -1 day in 2022. A negative cash conversion cycle indicates that the company was able to collect cash from customers before paying its suppliers, a sign of strong liquidity management in recent years.

In summary, the data reflects generally stable inventory management combined with some fluctuation in receivables and payables practices, particularly around 2021. The extension of payables payment periods during 2021 and the resulting negative cash conversion cycle point to strategic working capital adjustments that improved short-term liquidity. However, the subsequent partial reversal of these trends in 2022 indicates a recalibration towards normalization.

The analysis of the financial data over the six-year period from 2017 to 2022 reveals distinct trends in cost of goods sold, merchandise inventory, and inventory turnover.

Cost of Goods Sold (COGS)

The cost of goods sold demonstrates a generally increasing trend with some fluctuations. It rose steadily from approximately 9.17 billion to 11.54 billion between 2017 and 2020, followed by a significant dip in 2021 to around 9.84 billion. However, the figure sharply increased again in 2022, reaching its highest point in the period at over 13.7 billion. This pattern indicates overall growth in sales volume or product costs, with a notable decrease in 2021, possibly reflecting market disruptions or operational adjustments.

Merchandise Inventory

Merchandise inventory levels increased gradually from about 1.51 billion in 2017 to nearly 1.83 billion in 2020. Similar to COGS, inventory dropped in 2021 to approximately 1.51 billion, returning to the 2017 level, before rising sharply again in 2022 to over 2.26 billion. This fluctuation suggests responsive inventory management strategies aligned with sales cycles or supply chain conditions, with a particularly large buildup of inventory seen in the last reported year.

Inventory Turnover Ratio

The inventory turnover ratio remained relatively stable throughout the period, fluctuating within a narrow range from 6.06 to 6.52. The ratio increased gradually from 6.06 in 2017 to a peak of 6.52 in 2021, indicating slightly improved efficiency in converting inventory into sales. However, there was a decline back to 6.06 in 2022, coinciding with the substantial inventory increase, which might suggest a temporary slowdown in inventory movement despite high levels of stocking.

In summary, the company experienced growth in cost of goods sold and merchandise inventory over the observed period, interrupted by declines in 2021 that were subsequently reversed. The inventory turnover ratio reflects modest fluctuations, pointing to generally consistent inventory management with some variations likely due to external factors influencing inventory volume and sales velocity.

The financial data reflects the performance of specific financial indicators over a six-year period ending in early 2022. The analysis of sales, accounts receivable, and receivables turnover provides insight into the company's revenue growth and efficiency in managing its credit sales.

Sales

Sales exhibited a general upward trend from 2017 through 2020, increasing from approximately 12.87 billion USD to over 16.04 billion USD. However, in the fiscal year ending January 30, 2021, there was a significant decline, with sales dropping to approximately 12.53 billion USD. This decrease was followed by a substantial recovery and peak in 2022, where sales rose sharply to around 18.92 billion USD, the highest in the period analyzed.

Accounts Receivable

Accounts receivable consistently increased over the six years, moving from roughly 75.15 million USD in 2017 to about 119.25 million USD in 2022. This steady rise suggests an increasing amount of credit extended to customers, which is consistent with the general growth in sales except for the noted dip in 2021.

Receivables Turnover Ratio

The receivables turnover ratio generally declined from 171.21 in 2017 to a low of 108.91 in 2021, indicating that the company was collecting receivables more slowly relative to sales during that period, especially noticeable during the year when sales saw a decline. By 2022, the ratio rebounded to 158.63, suggesting an improvement in collection efficiency alongside the significant rebound in sales.

Overall, the data reveals a business that experienced robust growth up to 2020, faced challenges likely tied to external factors in 2021 resulting in decreased sales and slower receivable collections, and then demonstrated significant recovery and operational improvement in 2022. The patterns in accounts receivable correspond with sales trends, and the turnover ratio highlights fluctuations in credit management efficiency correlating with these sales changes.

Cost of Goods Sold (COGS)

The cost of goods sold shows an overall increasing trend over the six-year period, rising from approximately 9.17 billion USD in early 2017 to around 13.71 billion USD by early 2022. This suggests that the company experienced growth in its sales volume or faced increased costs associated with producing or acquiring goods. Notably, there is a decline in COGS from early 2020 to early 2021, decreasing from about 11.54 billion USD to 9.84 billion USD before rising again in 2022. This dip could indicate lower sales in the fiscal year 2021, potentially due to market conditions or operational challenges.

Accounts Payable

Accounts payable values increased steadily from approximately 1.02 billion USD in early 2017 to about 2.37 billion USD by early 2022. The most significant increase occurred between early 2020 and early 2021, when accounts payable nearly doubled from roughly 1.30 billion USD to 2.26 billion USD and continued to rise in 2022. This substantial increase may reflect extended payment terms or greater procurement needs, possibly aligned with the fluctuations in COGS.

Payables Turnover Ratio

The payables turnover ratio, representing how many times payables are paid off during the period, exhibits a downward trend over the analyzed years. The ratio declined from 8.98 in early 2017 to a low of 4.36 in early 2021, before partially recovering to 5.78 in early 2022. The decline indicates that the company took longer to pay its suppliers over the years, particularly in 2021 where the lowest turnover ratio aligns with the significant increase in accounts payable. The partial recovery in 2022 suggests some improvement in payment efficiency but still remains below earlier levels.

Summary of Trends and Insights

The data reflects a general increase in the scale of operations or costs, as indicated by rising COGS and accounts payable. The significant dip in COGS in 2021, coupled with a sharp increase in accounts payable and a declining payables turnover ratio, could point to operational disruptions or a strategic change in payment policies during that year. Overall, the company appears to have been managing longer supplier payment periods recently, which may improve short-term liquidity but could impact supplier relationships. The partial recovery in the payables turnover ratio in 2022 signals a potential return to more normalized payment practices.

Working Capital

The working capital demonstrates an overall increasing trend from 2017 to 2022. Starting at approximately 1.06 billion USD in early 2017, it rose steadily to about 1.39 billion USD in early 2019. A notable dip occurred in 2020, where working capital decreased to roughly 731 million USD. However, there was a significant recovery and growth in 2021 and 2022, reaching over 3.25 billion USD by early 2022, which represents the highest value in the period analyzed.

Sales

Sales exhibited a generally upward movement over the span of years evaluated, beginning at approximately 12.87 billion USD in 2017 and increasing to 16.04 billion USD in 2020. A decline is visible in 2021, where sales dropped markedly to around 12.53 billion USD. This was followed by a strong rebound in 2022, with sales rising sharply to 18.92 billion USD, the highest recorded within the given timeframe.

Working Capital Turnover Ratio

The working capital turnover ratio shows variability throughout the years. Initially, the ratio declined gradually from 12.13 in 2017 to 10.74 in 2019, indicating slower sales generation relative to working capital. A significant increase to 21.94 in 2020 suggests a strong performance in utilizing working capital to generate sales during that year. However, in 2021, the ratio dropped sharply to 4.6, reflecting either a disproportionate increase in working capital or a fall in sales efficiency. The ratio slightly improved to 5.81 in 2022 but remained considerably lower than in earlier years.

Overall Observations

The data indicates periods of volatility, likely influenced by external factors impacting sales and working capital management. The sharp decrease and subsequent recovery in sales, alongside fluctuations in working capital and turnover ratio, suggest shifts in operational efficiency and possibly the company's strategic adjustments. The strong increases in working capital in the last two years imply a focus on liquidity or inventory, whereas the drop in turnover ratio points toward decreased efficiency in using capital to generate sales during the same period.

Inventory Turnover

The inventory turnover ratio demonstrated a generally stable trend from 2017 to 2022, with a slight increase observed reaching a peak of 6.52 in 2021. The ratio started at 6.06 in 2017, increasing gradually each year, except for a slight decrease back to 6.06 in 2022. This suggests that the company maintained consistent efficiency in managing inventory relative to sales throughout this period, with the highest turnover indicating a period of improved inventory utilization in 2021 before returning to initial levels.

Average Inventory Processing Period

The average inventory processing period, measured in days, remained consistent at 60 days from 2017 to 2019. A slight improvement was evident in 2020 and 2021, as the period decreased to 58 and then 56 days respectively. This reduction points to a faster inventory processing cycle during these years, aligning with the peak observed in inventory turnover. However, in 2022, the processing period returned to 60 days, indicating a reversion to previous cycle lengths and a slight slowdown in inventory clearance compared to the prior two years.

Summary Insight

Overall, both metrics reflect a relatively stable inventory management performance over the six-year span. The peak in inventory turnover and the shortest processing period in 2021 suggest a temporary phase of enhanced operational efficiency. The subsequent return to earlier levels in 2022 may indicate either an adjustment in inventory strategy or external factors affecting inventory movement. The data underscores a consistent approach to inventory management with minor fluctuations rather than any significant structural changes.

Receivables Turnover

The receivables turnover ratio demonstrates a general declining trend from 171.21 in 2017 to 108.91 in 2021, indicating a reduction in the frequency with which the company collects its receivables over the years. However, there is a notable rebound to 158.63 in 2022, reflecting an improvement in collection efficiency during the latest period analyzed.

Average Receivable Collection Period

The average receivable collection period remains predominantly stable at 2 days for most years, signifying a consistent period for receivable conversions into cash. An exception occurs in 2021 when the period increases slightly to 3 days, corresponding with the dip observed in the receivables turnover ratio during the same year, which suggests a marginal delay in collections during that fiscal period.

Overall Assessment

The data indicate that, while the company maintained a generally efficient receivables collection process, there was a temporary decline in collection efficiency around 2021. The subsequent recovery shown in 2022 suggests effective measures may have been implemented to enhance receivables management. The consistency in the average collection period for most years underlines the company's ability to manage receivables effectively over time.

The financial data reveals insights into the company's operational efficiency over a six-year period ending in early 2022. Key metrics include the average inventory processing period, average receivable collection period, and overall operating cycle, all measured in days.

Average Inventory Processing Period

This metric remained steady at 60 days from 2017 through 2019, decreased slightly to 58 days in 2020, further declined to 56 days in 2021, and then returned to 60 days in 2022. The initial reductions suggest improvements in inventory turnover efficiency during 2020 and 2021; however, the rebound to 60 days in 2022 indicates a potential reversal or stabilization back to earlier levels.

Average Receivable Collection Period

The receivable collection period was consistently 2 days from 2017 to 2020, increased to 3 days in 2021, then reverted to 2 days in 2022. Overall, this implies that receivables were collected very quickly throughout the period, with a minor and temporary extension in 2021, which could reflect changes in customer payment behavior or credit policies during that year.

Operating Cycle

The operating cycle closely mirrors the trends observed in the inventory processing period, starting at 62 days from 2017 to 2019, decreasing to 60 days in 2020 and 59 days in 2021, and increasing back to 62 days in 2022. This cycle combines inventory and receivables periods, indicating a slight improvement in operational efficiency around 2020-2021 followed by a return to prior levels by 2022.

In summary, the company's operating efficiency demonstrated slight improvement during the 2020 and 2021 periods, primarily driven by reduced inventory processing days and a marginal elongation of receivable collections. Nonetheless, the data indicates a reversion to earlier operational patterns by 2022, suggesting that the gains during that timeframe might not have been sustained.

Payables Turnover

The payables turnover ratio exhibited relative stability from 2017 to 2020, fluctuating marginally between 8.90 and 9.48. However, a significant decline is observed in 2021, where the ratio dropped sharply to 4.36, followed by a partial recovery to 5.78 in 2022. This indicates a slower rate of settling payables during this period compared to previous years.

Average Payables Payment Period

The average number of days taken to pay payables remained consistent at around 39 to 41 days from 2017 through 2020. This metric then experienced a pronounced increase in 2021, rising to 84 days, effectively doubling the prior average period. In 2022, the payment period shortened to 63 days but still remained significantly higher than the pre-2021 levels. This trend corroborates the observed decrease in payables turnover, suggesting a deliberate extension of the payment cycle in recent years.

Average Inventory Processing Period

The average inventory processing period remained stable at 60 days from 2017 through 2019, followed by a slight decrease to 58 and then 56 days in 2020 and 2021, respectively. However, it returned to 60 days in 2022, indicating a generally consistent turnover pace with minor fluctuations.

Average Receivable Collection Period

The collection period was steady at 2 days for most years, with a brief increase to 3 days in 2021 before returning to 2 days in 2022. This suggests a generally efficient and consistent receivables management policy across the years.

Average Payables Payment Period

The payables payment period exhibited a moderate decline from 41 days in 2017 to 39 in 2018, and then fluctuated around 40-41 days until 2020. A notable increase occurred in 2021, where the period more than doubled to 84 days, followed by a reduction to 63 days in 2022. This pattern indicates a strategic extension of payment terms or delayed payments during 2021, partially reversed in 2022.

Cash Conversion Cycle

The cash conversion cycle remained positive and relatively stable around 21-23 days from 2017 through 2019, then decreased to 19 days in 2020. A significant shift occurred in 2021, turning the cycle negative at -25 days, with a slight improvement to -1 day in 2022. This negative cycle implies that the company was able to collect cash from sales faster than it needed to pay its suppliers during this period, reflecting enhanced liquidity management and operational efficiency in recent years.