Synopsys Inc. (NASDAQ:SNPS)

The financial ratios indicate varied trends over the analyzed periods, reflecting changes in operational efficiency and working capital management.

Inventory Turnover

This ratio exhibits a general declining trend from early 2020 through early 2025, starting at 5.09 and gradually decreasing to values around 3.0 to 3.5 in the most recent periods. The decline suggests that inventory is being turned over less frequently, indicating slower inventory movement or potential inventory buildup over time.

Receivables Turnover

Receivables turnover displays fluctuations, with peaks observed intermittently. Initially at 4.22, the ratio rises significantly reaching values above 7.0 around mid-2021 and again in several subsequent quarters. However, decreases also occur, notably dropping to 4.34 and 4.62 in 2022 and 2025 respectively. This volatility suggests variable efficiency in collecting receivables, with some periods reflecting strong collection practices and others weaker performance.

Working Capital Turnover

Despite some missing early data, the turnover ratio reveals considerable volatility. A notable peak of 27.06 occurs in Q3 2020, followed by a sharp decline and subsequent oscillations. From 2023 onwards, the ratio displays a consistent downward trajectory, falling below 1.0 in some quarters, which indicates significantly reduced efficiency in utilizing working capital to generate sales.

Average Inventory Processing Period

The average days to process inventory increased from 72 days at the start of 2020 to over 115 days in the later years, with peaks above 120 days. This pattern aligns with the inventory turnover trend, confirming slower inventory movement and possibly lengthening holding periods.

Average Receivable Collection Period

Receivable collection days have shown variability, initially decreasing from 86 to below 50 days around mid-2021 and early 2023, indicating improved collection efficiency. However, spikes above 70 days reoccur, particularly in late 2024 and early 2025, denoting periods of slower receivables conversion to cash.

Operating Cycle

The operating cycle duration fluctuates, ranging roughly between 129 and 183 days. Peaks in this cycle coincide with increased inventory processing and receivables collection periods, highlighting times when the overall cash conversion cycle has lengthened, which could imply more funds tied up in working capital.

Overall, the data suggests that there have been challenges in maintaining consistent operational efficiency, particularly in inventory management and working capital turnover. Fluctuations in receivables metrics imply inconsistent collection practices, which alongside lengthening inventory periods, contribute to extended operating cycles. This pattern signals potential areas for enhanced focus in inventory and receivables management to optimize liquidity and operational performance.

Cost of revenue

The cost of revenue demonstrates a generally upward trend over the observed periods, increasing from approximately $193 million at the beginning of 2020 to levels exceeding $380 million by mid-2025. Notable fluctuations occur within individual quarters, with some quarters in 2024 showing substantial rises, such as a spike to $375 million in October 2024, followed by subsequent variability. This trend reflects increasing expenditure related to goods sold or services delivered, suggesting growth in operational scale or rising input costs.

Inventories

Inventory levels generally increase over the timeframe, rising from about $148 million in early 2020 to a peak above $415 million around early 2025 before slightly declining thereafter. Inventory accumulation shows periods of rapid growth, specifically from 2022 through early 2025, indicating either stockpiling or expansion of inventory holdings. This growth in inventories may point to strategic preparation for demand or supply chain considerations.

Inventory turnover

The inventory turnover ratio displays a declining trend from over 5.0 in early 2020 down to values fluctuating around 3.0 to 3.5 in the later periods. This reduction signifies slower movement of inventory relative to sales, implying potential challenges in inventory management efficiency or changes in sales velocity. Periodic minor recoveries in turnover occur, but the overall tendency is downward, suggesting an increasing amount of inventory held per unit of cost of revenue.

Insights

The simultaneous increase in both cost of revenue and inventories, combined with decreasing inventory turnover, indicates that inventory is accumulating faster than it is being utilized or sold relative to the cost basis. This may reflect strategic adjustments to supply chain, market demand anticipation, or challenges in matching inventory levels to sales. The fluctuations in cost of revenue and inventory levels might also relate to seasonality or other operational factors. The declining efficiency in inventory turnover warrants monitoring as it may impact working capital management and cost control.

The financial data indicates notable fluctuations and evolving trends across key metrics including revenue, accounts receivable, and receivables turnover over the observed quarters.

Revenue Trends

Revenue demonstrates an overall upward trajectory from January 2020 through July 2025. Initial revenue figures start at approximately 834 million US dollars and gradually increase, with some variability, to nearly 1.74 billion US dollars by the final reported quarter. Incremental growth is evident, particularly from late 2020 onwards, with peaks often recorded during the last quarters of each year, suggesting possible seasonal influences or successful business cycles during those periods.

Accounts Receivable, Net

The net accounts receivable figures display more pronounced volatility compared to revenue. Values fluctuate significantly, ranging from a low near 577 million US dollars to highs exceeding 1.39 billion US dollars. Certain quarters show sharp increases, for instance January 2022 and October 2023, indicating periods of increased credit sales or slower collections. The variability suggests fluctuating liquidity dynamics and credit management challenges, with notable spikes that may imply temporary collection delays or expansion in sales on credit.

Receivables Turnover Ratio

The receivables turnover ratio, representing the efficiency of credit collections, fluctuates cyclically over the timeframe. Higher turnover ratios occur intermittently, with peaks such as 8.29 (July 2023) and 7.56 (July 2024), indicating periods when the company effectively collects receivables more quickly relative to revenue. Conversely, lower turnover values near or below 5.0 (e.g., January 2020 and January 2022) correspond with quarters exhibiting higher accounts receivable balances, implying slower collections. The oscillating pattern suggests varying collection efficiencies possibly affected by external factors or operational conditions.

In summary, revenue growth appears steady but is accompanied by volatility in accounts receivable balances and collections efficiency. The interplay between these metrics highlights the importance of managing credit policies and collection efforts in tandem with sales expansion to optimize working capital and sustain financial health.

The analysis of the quarterly financial data reveals several notable trends regarding the company's working capital, revenue, and working capital turnover ratios over the observed periods.

Working Capital

The working capital values exhibit considerable fluctuations across the quarters. Initially, there is a shift from negative figures in early 2020 to positive and steadily increasing values through the end of 2020 and into early 2021. This upward trajectory continues, with isolated declines notably around the third and fourth quarters of 2022. From early 2023 onwards, the working capital shows significant acceleration, reaching a peak around the first quarter of 2025. The variability suggests periodic changes in current assets and liabilities management, with the substantial increase in later periods possibly indicating improved liquidity management or accumulation of current assets relative to current liabilities.

Revenue

Revenue demonstrates a general growth trend over the analyzed periods, starting at approximately 834 million US dollars in early 2020 and rising to roughly 1.74 billion US dollars by mid-2025. The increases are somewhat consistent with minor fluctuations, including a slight dip in revenue during some quarters such as early 2024. The growth trend indicates ongoing business expansion and potentially stronger market demand or successful sales strategies. Despite occasional minor declines, the revenue trajectory is predominantly upward.

Working Capital Turnover

The working capital turnover ratio presents a highly volatile pattern. Beginning with high values in 2020 and fluctuating notably through subsequent quarters, the ratio shows a downward trend starting from mid-2023 onwards. This decreasing pattern culminates in very low ratios near early 2025, with a slight recovery afterward. The turnover ratio's decline while revenue increases and working capital rises indicates that the company is generating less revenue per unit of working capital, potentially suggesting less efficient utilization of working capital in recent periods.

Overall Insights

The company exhibits robust revenue growth accompanied by increasing working capital, especially in the recent quarters. However, the efficiency of working capital usage appears to decline over the same timeframe, as indicated by the falling working capital turnover ratio. This discrepancy may warrant further examination into current asset management, accounts receivable, inventory levels, or other operational aspects affecting liquidity utilization. The considerable variability in working capital and turnover ratios suggests shifts in financial strategy or operational cycles impacting short-term financial stability and operating efficiency.

The analysis of the inventory management metrics over the reported periods reveals distinct trends and cyclical patterns that may have implications for operational efficiency and inventory control.

Inventory Turnover Ratio

The inventory turnover ratio exhibits a generally declining trend from early 2020 through early 2025. Starting at a higher ratio of around 5.09x in January 2020, it fell notably to the mid-3x range by early 2025. This decline indicates the company is turning over its inventory less frequently over time.

There are observable periodic fluctuations, with some recoveries occurring mid-year comfortably around 4.x ratios during 2021 and early 2022, followed by subsequent decreases toward the end of the reported timeline. The ratio peaked again at 5.02 at the end of 2022 but then trended downward substantially afterward.

Average Inventory Processing Period

The average inventory processing period, measured in days, moves inversely to the inventory turnover ratio. It starts near 72 days in January 2020 and progresses upward to over 120 days by the middle of 2025.

Significant increases in processing periods around 2021 and from late 2023 onward suggest a growing duration to sell or process inventory, correlating with the decreases seen in inventory turnover.

The data also shows cyclical patterns, with some reduction in days during mid-2022 and early 2023, which correspond to temporary improvements in turnover ratios.

Insights and Implications

The inverse relationship between inventory turnover and processing period is consistent and expected given the metrics' nature.

The overall downward trend in turnover and corresponding increase in days indicate a potential decline in inventory management efficiency or changes in sales velocity, demand patterns, or inventory policy.

Such patterns may prompt investigation into supply chain, production planning, or market conditions affecting inventory utilization.

The analysis of the company's receivables turnover and average receivable collection period over multiple quarters reveals notable fluctuations and patterns indicative of changes in credit management efficiency and customer payment behavior.

Receivables Turnover Trend

The receivables turnover ratio demonstrates variability across the observed periods. Initially, the ratio rose from 4.22 to a peak of approximately 7.4 in late 2021, indicating an improvement in the frequency with which the company collected its receivables. However, this was followed by a decline to 4.62 by mid-2025, reflecting a decrease in collection efficiency.

Periods of strong turnover, such as early to mid-2021 and mid-2023, suggest effective credit control or faster customer payments, while the downturn towards 2025 may point to slower collections or extended credit terms.

Average Receivable Collection Period Trend

The average collection period inversely mirrors the turnover ratio, with values ranging from a low of 44 days to a high of 86 days. The shortest collection periods coincided with higher turnover ratios, demonstrating efficient cash collection cycles. Conversely, increases to around 75-86 days coincide with troughs in turnover, suggesting delayed payments or extended receivables aging.

The extended collection days observed periodically, particularly in early 2020 and late 2024 to early 2025, may reflect challenges in accounts receivable management or changes in customer payment behavior.

Overall Interpretation

The inverse relationship between the receivables turnover and collection period confirms expected patterns: as turnover rises, collection days shorten, and vice versa. The fluctuations observed suggest that the company experiences cyclical or external influences affecting collections, such as changing market conditions or customer credit policies.

Monitoring these metrics closely is important to maintain working capital efficiency. Recent downward trends in turnover and lengthening of collection periods towards the end of the dataset warrant attention to prevent cash flow pressures.

Average Inventory Processing Period

The average inventory processing period exhibits notable fluctuations over the analyzed timeframe. Starting at 72 days in January 2020, it increases to a peak of 104 days by January 2021. Subsequently, it declines to 73 days by October 2022, indicating improved inventory turnover efficiency during this period. However, from late 2022 onward, there is a renewed upward trend, reaching 123 days in January 2025, followed by a slight reduction towards mid-2025. This pattern suggests variability and occasional lengthening of inventory holding times, particularly in the most recent quarters.

Average Receivable Collection Period

The average receivable collection period demonstrates a general downward tendency from January 2020 through July 2021, dropping from 86 days to as low as 44 days in July 2023. This trend reflects an improvement in the company's efficiency in collecting receivables during this timeframe. Despite this overall improvement, intermittent increases occur, such as rises to 84 days in January 2022 and 79 days by July 2025, indicating some inconsistency in collection efficiency at certain points.

Operating Cycle

The operating cycle, representing the sum of inventory processing and receivable collection periods, reveals a varying pattern over the observed periods. Initially, it decreases from 158 days in January 2020 to 143 days in July 2020, then peaks at 179 days in January 2021. After some volatility, it settles into a range fluctuating between approximately 130 and 183 days. The operating cycle's increase in recent years, particularly peaking near 183 days in July 2025, suggests a lengthening cash conversion cycle, potentially impacting working capital efficiency.