Steel Dynamics Inc. (NASDAQ:STLD)

Inventory Turnover

The inventory turnover ratio has shown a decreasing trend over the five-year period. Starting at 5.24 in 2017, it slightly fluctuated before declining more notably to 3.69 in 2021. This indicates that inventory is being sold less frequently, which may suggest a slowdown in inventory movement or increased holding periods.

Receivables Turnover

The receivables turnover ratio exhibited a moderate increase from 10.98 in 2017 to a peak of 12.39 in 2019, followed by a decline to 9.61 in 2021. This pattern suggests improved collections efficiency until 2019, after which the collection period appears to have lengthened.

Payables Turnover

Payables turnover saw a strong performance from 2017 through 2019, rising from 16.26 to 17.4. However, there was a significant drop thereafter, reaching 10.19 in 2021. This decline implies that the company is taking longer to pay its suppliers in the most recent years compared to earlier periods.

Working Capital Turnover

The working capital turnover ratio fluctuated without a clear linear trend. It increased initially from 3.61 in 2017 to 3.92 in 2018, followed by a decrease until 2020. In 2021, it rose again to 3.94, indicating varying levels of efficiency in using working capital to generate sales throughout the period.

Average Inventory Processing Period

The average number of days inventory is held showed initial stability around 69-71 days but increased substantially to 99 days by 2021. This aligns with the declining inventory turnover ratio and signals a longer holding period for inventory, potentially impacting liquidity and carrying costs.

Average Receivable Collection Period

This metric decreased from 33 days in 2017 to 29 days in 2019, suggesting quicker collections. However, it increased to 38 days in 2021, corroborating the decline in receivables turnover and indicating slower cash inflows from customers in recent years.

Operating Cycle

The operating cycle, which reflects the total time to convert inventory and receivables into cash, was relatively stable around 100 days through 2019, but extended considerably to 137 days in 2021. This extension points to a slower overall conversion process in the most recent year.

Average Payables Payment Period

The average time to pay suppliers remained around 21-22 days until 2019, after which it lengthened significantly to 36 days by 2021. This suggests a strategic or necessity-driven delay in payments, possibly to conserve cash.

Cash Conversion Cycle

The cash conversion cycle initially hovered around 77-82 days from 2017 to 2019 but increased to 101 days by 2021. This increase reflects the combined effect of longer inventory processing and receivable collection periods, despite an extended payables payment period, leading to longer net cash tied up in operations.

Costs of Goods Sold (COGS)

The cost of goods sold exhibits a fluctuating trend over the five-year period. Initially, there is an increase from approximately 7.96 billion in 2017 to about 9.5 billion in 2018. This is followed by a slight decline to roughly 8.93 billion in 2019 and a further decrease in 2020 to approximately 8.17 billion. However, there is a significant rise in COGS in 2021, reaching approximately 13.05 billion, the highest value in the observed period. This sharp increase may indicate higher production costs, increased sales volume, or both.

Inventories

Inventories show a generally increasing trend throughout the period. Starting at approximately 1.52 billion in 2017, inventories grow steadily to about 1.86 billion in 2018, then slightly decline to 1.69 billion in 2019 before increasing again to 1.84 billion in 2020. A notable surge occurs in 2021, where inventories more than double to roughly 3.53 billion. This significant inventory accumulation may indicate strategic stockpiling, slower inventory turnover, or preparation for anticipated demand growth.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates a downward trend, suggesting a decline in the frequency with which inventory is sold and replaced over the period. Starting at 5.24 in 2017, it remains relatively stable through 2018 and 2019, at approximately 5.11 and 5.29 respectively. However, the ratio declines in 2020 to 4.43 and further drops to 3.69 in 2021. This decreasing turnover ratio corresponds with the increasing inventory levels in 2021 and may signal reduced sales efficiency or increased holding periods for inventory.

Over the five-year period ending December 31, 2021, the net sales exhibit a fluctuating trend with an overall upward trajectory. Initially, net sales increased from approximately 9.54 billion US dollars in 2017 to around 11.82 billion in 2018, indicating growth. However, there was a decline in the subsequent years, dropping to 10.46 billion in 2019 and further to 9.60 billion in 2020. A significant rebound occurred in 2021, with net sales rising sharply to approximately 18.41 billion US dollars, representing the highest value within the period analyzed.

The accounts receivable, net of allowances for credit losses, also reflect this general growth pattern but with less volatility. The balance rose from roughly 869 million US dollars in 2017 to 1.04 billion in 2018, decreased to 844 million in 2019, and then increased progressively through 2020 and 2021, reaching nearly 1.92 billion US dollars in 2021. The marked increase in 2021 aligns with the surge in net sales, suggesting expanded sales activities or potentially longer receivables periods.

Receivables turnover, which measures the efficiency of collecting receivables, demonstrates variability over time with an apparent downward trend starting in 2019. The ratio increased from 10.98 in 2017 to 12.39 in 2019, indicating improved collection efficiency during that period. Subsequently, the turnover ratio declined to 9.88 in 2020 and further to 9.61 in 2021. This decline suggests that receivables are being collected more slowly in recent years, coinciding with the increases in accounts receivable balances. The reduction in turnover efficiency, despite higher net sales and receivables, may indicate relaxed credit terms or challenges in collection practices.

In summary, the company experienced fluctuations in net sales with a strong recovery in 2021. The growth in accounts receivable follows a similar pattern, particularly peaking in 2021. However, the decreased receivables turnover ratio in the latter years suggests a decline in collection efficiency, which requires attention to optimize working capital management.

Costs of Goods Sold

The costs of goods sold showed a fluctuating trend over the analyzed periods. Starting at approximately 7.96 billion US dollars in 2017, this figure increased to around 9.50 billion in 2018. A slight decrease was observed in 2019, dropping to approximately 8.93 billion, followed by a further decline to about 8.17 billion in 2020. However, in 2021, there was a sharp increase to approximately 13.05 billion US dollars, representing the highest value during the period.

Accounts Payable

Accounts payable displayed a general upward trajectory throughout the years. Beginning at roughly 489 million US dollars in 2017, it increased moderately to around 551 million in 2018, then slightly declined to about 513 million in 2019. In 2020, accounts payable rose significantly to approximately 769 million and continued to increase sharply to around 1.28 billion US dollars in 2021, marking the highest level in the dataset.

Payables Turnover Ratio

The payables turnover ratio experienced a notable decline over the period. Starting at 16.26 in 2017, it increased modestly to 17.25 in 2018 and slightly further to 17.40 in 2019, indicating faster payment rates to suppliers. However, the ratio dropped considerably in 2020 to 10.61 and decreased further to 10.19 in 2021. This decline signifies that the company took longer to pay its suppliers in the last two years compared to the previous periods.

Summary of Trends and Insights

Over the five-year period, the company showed variability in cost management with a significant cost reduction in 2020 followed by a sharp increase in 2021. Accounts payable followed a rising trend, particularly accelerating from 2019 onwards, which may reflect extended payment periods or increased procurement volume. Correspondingly, the payables turnover ratio declined markedly during the last two years, indicating slower payments to suppliers. This shift might suggest changes in working capital management strategies, possibly to conserve cash or adjust to operational conditions in recent years.

The analyzed annual financial data reveals distinct trends in working capital, net sales, and the working capital turnover ratio over the five-year period from 2017 to 2021.

Working Capital

Working capital exhibited a generally increasing trend from 2017 through 2021, rising from approximately US$2.64 billion in 2017 to about US$4.67 billion in 2021. Notably, there was a slight decrease in 2020 compared to 2019, where working capital fell from approximately US$3.25 billion to around US$3 billion, before resuming its upward trend in 2021 with a significant increase to nearly US$4.67 billion.

Net Sales

Net sales showed considerable fluctuations over the period. From 2017 to 2018, net sales increased markedly from about US$9.54 billion to roughly US$11.82 billion. This was followed by a decline in 2019 to approximately US$10.46 billion and a further decrease in 2020 to around US$9.60 billion. However, there was a substantial rebound in 2021, with net sales reaching approximately US$18.41 billion, the highest value in the observed timeframe.

Working Capital Turnover Ratio

The working capital turnover ratio, which reflects the efficiency with which working capital is used to generate sales, exhibited some variability. It increased from 3.61 in 2017 to 3.92 in 2018, indicating improved efficiency. This was followed by a decrease to 3.22 in 2019 and a slight further decline to 3.20 in 2020, suggesting a reduction in efficiency during that period. In 2021, the ratio rose again to 3.94, reaching the highest point observed and indicating a renewed improvement in working capital utilization relative to sales.

Overall, the data reflect a dynamic environment characterized by fluctuations in sales and efficiency, with a notable recovery and growth in both sales and working capital metrics in the latest year. The increases in working capital and working capital turnover in 2021 suggest enhanced operational performance and financial resource management compared to prior years.

Inventory Turnover

The inventory turnover ratio exhibited a declining trend over the five-year period. Starting at 5.24 in 2017, it slightly decreased to 5.11 in 2018 before marginally rising to 5.29 in 2019. However, from 2019 onwards, the ratio decreased significantly, reaching 4.43 in 2020 and further declining to 3.69 in 2021. This indicates a reduction in the frequency at which inventory is sold and replaced during the later years.

Average Inventory Processing Period

The average inventory processing period demonstrated an increasing trend over the same period. Initially, it remained relatively stable around 69–71 days from 2017 to 2019. Starting in 2020, there was a notable increase to 82 days, followed by a further increase to 99 days in 2021. This reflects a lengthening of the time inventory remains held before being sold.

Overall Analysis

The inverse relationship between inventory turnover and average inventory processing period is evident. As the efficiency of inventory turnover declined, the duration inventory remained on hand increased substantially, particularly in the final two years. This may suggest challenges in inventory management or changes in demand conditions leading to slower inventory movement. The significant extension in the processing period and corresponding reduction in turnover ratio in 2020 and 2021 could reflect operational disruptions or strategic shifts affecting inventory dynamics during these years.

Receivables turnover

The receivables turnover ratio showed an initial upward trend from 10.98 in 2017 to a peak of 12.39 in 2019, indicating an improvement in the efficiency of collecting receivables over that period. However, from 2019 onward, the ratio declined to 9.88 in 2020 and further to 9.61 in 2021. This decline suggests a deterioration in the company's ability to collect its receivables promptly during the last two years of the reported period.

Average receivable collection period

The average receivable collection period generally moved inversely to the receivables turnover ratio. It decreased from 33 days in 2017 to 29 days in 2019, reflecting faster collection of accounts receivable. Subsequently, this trend reversed, with the period increasing to 37 days in 2020 and 38 days in 2021. This increase indicates slower receivables collection and potentially suggests challenges in managing credit or customer payment patterns in the more recent years.

Summary of trends

Overall, the data indicates that the company experienced an improvement in receivables management efficiency through 2019, followed by a noticeable decline in 2020 and 2021. The longer collection periods coupled with reduced turnover ratios in the latter years may warrant further investigation into credit policies, customer creditworthiness, or external factors impacting collections.

Inventory Management

The average inventory processing period shows a gradual increase from 70 days in 2017 to 99 days in 2021. This indicates that the time taken to process inventory has lengthened over the five-year span, with a notable rise starting in 2020.

Receivable Collection Efficiency

The average receivable collection period exhibits a slight decline from 33 days in 2017 to 29 days in 2019, suggesting improved efficiency in collecting receivables during that interval. However, this trend reverses from 2020 onwards, increasing to 38 days by 2021, indicating slower receivable collections in recent years.

Overall Operating Cycle

The operating cycle, representing the total duration from inventory acquisition to cash collection, generally remained stable around 100 days from 2017 to 2019. Subsequently, it increased significantly to 137 days by 2021, reflecting the combined effect of longer inventory processing and extended receivable collection periods. This upward trend suggests a deceleration in working capital turnover efficiency in recent years.

Payables Turnover

The payables turnover ratio exhibited a decreasing trend over the five-year period. Initially, the turnover increased slightly from 16.26 in 2017 to a peak of 17.4 in 2019, indicating a faster rate of paying suppliers during these years. However, from 2019 onwards, the ratio declined significantly to 10.61 in 2020 and further to 10.19 in 2021. This decline reflects a reduction in the frequency of payments to suppliers, suggesting a lengthening of the accounts payable cycle in the most recent years.

Average Payables Payment Period

Inversely related to the payables turnover ratio, the average payables payment period remained steady at 21-22 days from 2017 to 2019, depicting consistent payment practices. Starting in 2020, there was a marked increase in the payment period to 34 days, extending further to 36 days in 2021. This extension aligns with the observed decline in payables turnover, indicating the company has been taking longer to settle its payables in the latest years reviewed.

Overall Insights

The data suggest a strategic shift or operational change in the company's approach to managing payables beginning in 2020. The lengthening payment period and reduced turnover ratio could imply efforts to optimize cash flow by delaying payments, possibly in response to external conditions or financial strategy adjustments. This may potentially affect supplier relationships and should be monitored carefully moving forward.

Average Inventory Processing Period

The average inventory processing period experienced a generally increasing trend over the analyzed years. Starting at 70 days in 2017, it remained relatively stable through 2018 and 2019 with minor fluctuations, before rising more sharply to 82 days in 2020 and further to 99 days in 2021. This indicates a lengthening time for inventory turnover in the later years, which could suggest slower inventory movement or changes in inventory management practices.

Average Receivable Collection Period

The average receivable collection period showed a decreasing trend from 33 days in 2017 to a low of 29 days in 2019, indicating improved efficiency in collecting receivables during this period. However, this trend reversed in 2020 and 2021, with the period increasing to 37 days and 38 days respectively. This suggests a deterioration in collection efficiency or potential changes in credit policies or customer payment behavior in the last two years.

Average Payables Payment Period

The average payables payment period remained stable at around 21-22 days from 2017 to 2019, but then increased substantially to 34 days in 2020 and 36 days in 2021. This lengthening payables period implies that the company took longer to pay its suppliers during the latter part of the period, which might indicate cash flow management strategies or changing supplier terms.

Cash Conversion Cycle

The cash conversion cycle followed a pattern broadly consistent with the inventory and receivables trends. It fluctuated slightly around the low 80s from 2017 to 2019, then rose noticeably to 85 days in 2020 and reached 101 days in 2021. The increase reflects lengthened time periods in managing working capital components, particularly inventory turnover and receivables collection, indicating a longer duration for converting investments in inventory and other resources into cash flows from sales.