Vertex Pharmaceuticals Inc. (NASDAQ:VRTX)

The analysis of the provided quarterly financial ratios and periods over time reveals several notable trends related to operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio displayed a gradual decline from 2.62 in March 2020 to 1.06 by June 2025, indicating a slower inventory movement and potentially increased inventory holding. Correspondingly, the average inventory processing period increased significantly from 139 days to 345 days over the same period, reinforcing the observation of slower inventory clearance.

Receivables Turnover

The receivables turnover ratio exhibited moderate fluctuations, generally ranging between about 5.95 and 7.19. There was a slight downward trend overall towards the end of the timeline. The average receivable collection period correspondingly remained fairly stable, oscillating between 51 and 64 days, with a mild tendency towards longer collection times in later periods, suggesting some pressure on accounts receivable collection efficiency.

Payables Turnover

The payables turnover ratio showed significant variability, ranging from 3.13 to 8.23, with no consistent upward or downward trend. The average payables payment period also fluctuated widely, spanning from 44 days to as high as 117 days. This volatility indicates changing payment practices to suppliers, with periods of quicker payments interspersed with periods of extended payment terms.

Working Capital Turnover

The working capital turnover ratio remained relatively stable around 0.9 to 1.03 during the early periods, then experienced a notable increase starting around March 2024, peaking near 1.92 before slightly moderating. This suggests improving efficiency in utilizing working capital to generate sales or revenue in later periods.

Operating Cycle

The operating cycle lengthened from 191 days to 406 days, indicating that the combined duration of inventory holding and receivables collection extended considerably. This lengthening reflects slower asset turnover and possibly increased capital tied up in operating processes.

Cash Conversion Cycle

The cash conversion cycle generally increased from 114 days to 304 days, with fluctuations that mirror changes in inventory and receivables periods, partially offset by variations in payables payment periods. An increasing cash conversion cycle suggests the company's cash is tied up longer in the operational process before being converted back into cash inflows.

In summary, the data illustrate a trend toward slower inventory turnover and longer operating and cash conversion cycles, denoting elongated working capital cycles over the analyzed timeframe. Receivables collection efficiency showed minor deterioration, while payables payment practices varied considerably without a clear trend. Improvement in working capital turnover ratios in recent periods could indicate enhanced utilization of working capital despite longer operating cycles, which may point to strategic shifts or changes in business operations impacting liquidity management.

Cost of Sales

The cost of sales shows a general upward trend over the analyzed period. Starting from around $162.5 million in the first quarter of 2020, it increased steadily with some fluctuations, reaching a peak of approximately $423.4 million in the first half of 2025. Notably, there was a significant rise during 2023 and 2024, indicating higher expenses related to goods sold or produced.

Inventories

Inventories exhibited consistent growth throughout the entire period. Beginning at roughly $187.1 million in early 2020, inventories more than doubled by mid-2024, reaching approximately $1.35 billion by June 2025. This steady accumulation suggests increasing stock levels, which could imply inventory buildup possibly due to higher production or slower sales turnover.

Inventory Turnover Ratio

The inventory turnover ratio, which measures how efficiently inventory is managed, demonstrates a declining trend. Starting from around 2.62 in late 2020, it gradually decreased to about 1.06 by mid-2025. This reduction indicates that inventories are being sold or used up less frequently over time, pointing to potentially slower inventory movement or increasing inventory holding periods.

Summary of Trends and Insights

The combination of rising cost of sales and rapidly increasing inventories coupled with a declining inventory turnover ratio suggests that while the company is incurring higher costs and accumulating more stock, the efficiency in converting inventory into sales is diminishing. This pattern may be indicative of expanding operations or production capacity, but also hints at possible challenges in inventory management or demand forecasting that could affect cash flow and profitability if not addressed.

The revenue figures demonstrate a consistent upward trend from March 31, 2020, through June 30, 2025. Starting at approximately 1.52 billion US dollars in the first quarter of 2020, revenues increase almost steadily each quarter, reaching close to 3 billion US dollars by the second quarter of 2025. Although minor fluctuations are observable in some quarters, the overall growth trajectory is positive, indicating sustained business expansion or successful market penetration over the observed period.

Accounts receivable, net, also show an increasing trend in absolute terms, growing from around 845 million US dollars in the first quarter of 2020 to nearly 1.89 billion US dollars by the second quarter of 2025. This increase appears somewhat aligned with the revenue growth, as higher sales volumes generally result in greater outstanding receivables. However, the rate of growth in accounts receivable is variable, with some quarters experiencing sharper increases than others, suggesting changing credit terms, customer payment behaviors, or collection efforts throughout the periods.

Receivables Turnover Ratio

This ratio, which measures how efficiently the company collects its receivables, exhibits some variability but remains within a range approximately between 5.68 and 7.19 over the period.

Beginning at about 7.01 in September 2020, the turnover ratios fluctuate, showing occasional declines followed by recoveries. The ratio tends to hover around the mid-6 range for most quarters, with a few dips below 6.0, notably in mid-2023 and early 2024, which could indicate slower receivable collection or extended payment periods during those times.

Overall, the receivables turnover rate suggests relatively stable but somewhat fluctuating efficiency in collecting receivables, despite the growing absolute values of accounts receivable. This mix of increasing receivable balances alongside a moderately steady turnover ratio points to the company managing its credit and collections reasonably well, even as sales and credit exposure increase.

In summary, the data reveals sustained revenue growth accompanied by rising accounts receivable, with the efficiency of receivables collection remaining generally stable but with periodic fluctuations. The increasing receivables imply higher credit sales or extended credit durations, while the turnover ratio suggests that collection processes are effective enough to maintain relatively consistent performance over the multiple-year span.

The cost of sales demonstrates a general increasing trend throughout the analyzed periods, starting from approximately $162.5 million in March 2020 and rising to a peak around $423.4 million in June 2025, though with some fluctuations. Notably, there was a substantial rise from December 2023 to June 2024, followed by a slight dip before rising again, indicating a possible seasonal or cyclical variation in costs or production scale.

Accounts payable also show fluctuations but generally follow an upward trajectory, increasing from about $100.7 million in March 2020 to approximately $442.3 million by June 2025. A significant jump is observed between December 2022 and March 2023, where payables increased sharply from around $303.9 million to over $323.2 million and continued an upward trend thereafter. This increase in payables may indicate either extended credit terms or higher purchasing activity.

Payables turnover ratio data is available from September 2020 onwards and reveals some variability. The ratio peaked at 8.23 in December 2022, indicating rapid payment to suppliers relative to cost of sales during that quarter. Subsequently, the turnover generally declined, fluctuating between approximately 3.13 and 4.27 from December 2023 to June 2025. This trend suggests a lengthening of the accounts payable period or slower payment pace in more recent quarters.

Cost of Sales

Consistent overall growth with a few fluctuations, indicating expanding operations or rising costs over time.

Accounts Payable

Increased notably, particularly from late 2022 onward, which may imply changes in supplier credit terms or purchasing volume.

Payables Turnover

Displayed a peak in late 2022, followed by a moderate decline, suggesting a shift towards longer payment periods in recent quarters.

In summary, the financial data indicates that while the company’s cost of sales has grown steadily, the rise in accounts payable and the declining payables turnover ratio in recent periods could reflect changes in working capital management strategy, possibly aiming to conserve cash or benefit from extended supplier payment terms. Monitoring these trends will be important for assessing liquidity and supplier relationships going forward.

The financial data over the observed periods reveals several notable trends concerning working capital, revenues, and the working capital turnover ratio.

Working Capital

The working capital generally exhibited an increasing trend from March 2020 through December 2022, rising from approximately 3.9 billion USD to nearly 10.5 billion USD. A peak is observed in Q4 2022 at around 10.5 billion USD. However, starting in Q1 2023, working capital shows some fluctuation, with values oscillating between roughly 9.5 billion USD and 11.1 billion USD until Q4 2023. From Q1 2024 onward, there is a marked decline in working capital to around 5.4 billion USD by mid-2024, after which a slight recovery occurs, but it remains below previous peak levels through mid-2025.

Revenues

Revenues reveal a consistent upward trajectory between Q1 2020 and Q4 2022, climbing from about 1.5 billion USD to over 2.3 billion USD, indicating steady growth. The revenue values remain relatively stable but show modest increases post-2022, fluctuating between 2.3 billion USD and nearly 3 billion USD through mid-2025. Despite minor quarterly variations, the overall revenue trend maintains a positive growth pattern.

Working Capital Turnover Ratio

The working capital turnover ratio appears only from Q3 2020 onward. Early in its appearance, the ratio hovers around 1.0, indicating that revenues and working capital are growing at similar rates. From late 2021 to early 2023, the ratio decreases gradually, dipping to about 0.85 at its lowest point, suggesting that working capital grows faster than revenues during this period. Starting from Q1 2024, the ratio exhibits a sharp increase, peaking near 1.92 in mid-2024, which coincides with the aforementioned decline in working capital and moderate revenue growth. This elevated turnover ratio persists through mid-2025, signifying more efficient use of working capital relative to revenues during this timeframe.

In summary, the data shows a substantial buildup of working capital up until the end of 2022, with revenues increasing steadily throughout the entire period. However, working capital decreases sharply starting in 2024, while revenues continue to grow modestly. This shifting dynamic is reflected in the rising working capital turnover ratio, indicating improved efficiency in working capital utilization in relation to revenues in the most recent periods analyzed.

The inventory-related metrics demonstrate a discernible trend over the observed periods, reflecting changes in the efficiency of inventory management.

Inventory turnover ratio

Beginning from March 2020 through June 2020, data is unavailable; however, starting March 2021, the ratio remained relatively stable around 2.5 to 2.6 until the first quarter of 2022. Post that period, there is a gradual but consistent decline in the ratio through to June 2025, dropping from 2.35 to as low as 1.06 by mid-2025. This decline suggests a decreasing rate at which inventory is sold and replaced, indicating potential challenges in inventory management efficiency or changes in sales volume relative to inventory levels.

Average inventory processing period (number of days)

This metric conversely shows an increasing trend over the same duration. From March 2021 onwards, the processing period fluctuated in the 130 to 145 days range until early 2022, after which it started to rise steadily. It increased from 156 days in the first quarter of 2022 to 345 days by March 2025. This increasing duration indicates that inventory remains on hand for longer periods, reinforcing the observations from the declining turnover ratio and pointing towards a slowdown in inventory movement.

Overall, the data indicates a progressive slowdown in inventory turnover, with inventory items taking longer to process through the system. This may imply overstocking, reduced demand, or operational inefficiencies affecting inventory flow. Monitoring these trends is critical for managing working capital and maintaining operational effectiveness.

Receivables Turnover Ratio

The receivables turnover ratio exhibits moderate fluctuations over the analyzed periods, ranging roughly between 5.95 and 7.19. The initial recorded value of 7.01 saw a slight decline to 6.56 in the next quarter and rebounded to a peak of 7.19 shortly thereafter. Through 2021 and 2022, the ratio fluctuated mostly in a narrow band between 6.15 and 6.66, indicating stable but slightly varying efficiency in collecting receivables. In more recent quarters, the ratio displayed a mild downward trend with occasional recoveries, dropping to as low as 5.68 at one point, before modestly rising again. Overall, the turnover ratio trends suggest consistent collection activity with some seasonal or operational variations affecting receivables turnover.

Average Receivable Collection Period (Days)

The average collection period inversely correlates with the receivables turnover ratio and consistently remains within a range of approximately 51 to 64 days. An initial value of 52 days increased to 56, then decreased back to 51 early on, indicating some initial volatility. For the majority of the timeframe, the collection period oscillated between 55 and low 60s days, suggesting a relatively stable timeframe for collecting receivables. Notable is the gradual increase to 64 days during one quarter, which may indicate a temporary slowdown in collections or extended credit terms. Generally, despite minor fluctuations, the average collection period remained stable with minor increases possibly reflecting changes in credit policy or customer payment behavior.

Overall Trend and Insights

The data reflects stability in the company's receivables management, with the turnovers and collection periods oscillating within tight ranges without drastic deterioration or improvement. The presence of some variability suggests responsiveness to operational factors or market conditions. No sharp or sustained trends indicate significant changes in credit policy or collection efficiency. Maintaining such consistency in receivable performance is beneficial for managing cash flow predictability and indicates effective credit management practices over the observed periods.

Average Inventory Processing Period

The average inventory processing period demonstrates a clear upward trend over the observed timeline starting from March 31, 2021. Initially, it remains relatively stable around the 139 to 145 days range. However, from March 31, 2023, there is a noticeable increase, with the period extending progressively from 156 days to as high as 345 days by June 30, 2025. This indicates a growing duration to process inventory, which could suggest potential challenges in inventory management or slower turnover rates over time.

Average Receivable Collection Period

The average receivable collection period shows moderate fluctuations across the quarters. It ranges mostly between 51 and 64 days with no consistent trend of increase or decrease. There are minor peaks and troughs, such as a peak at 64 days on June 30, 2024, and a low of 51 days on September 30, 2020. Overall, the receivable collection period remains relatively stable, indicating consistent efficiency or terms in collecting receivables over the reporting periods.

Operating Cycle

The operating cycle, which reflects the total time taken from inventory processing through receivable collection, follows the pattern seen in the inventory processing period. It gradually increases from 191 days as of March 31, 2021, to 406 days by June 30, 2025. The steady rise, particularly accelerating from early 2023 onwards, mirrors the elongation of the inventory processing period. This extension of the operating cycle suggests that the company is experiencing longer working capital cycles, potentially tying up more resources in inventory and receivables, which might impact liquidity and operational efficiency.

The payables turnover ratio exhibits notable volatility over the observed quarters. Initially, the ratio increased from 4.75 to a peak of 6.73, indicating accelerated payment of payables by the company during this period. Subsequently, a significant decline occurred, with the ratio dropping to as low as 3.13 in the quarter ending December 31, 2023. This downward trend suggests a slower rate of payables turnover. More recently, there is a moderate recovery, with the ratio rising to approximately 3.59 by June 30, 2025, yet it remains below earlier peak levels.

Correspondingly, the average payables payment period demonstrates an inverse movement relative to the payables turnover ratio, as expected. The payment period shortened from 77 days to 54 days during the initial quarters, indicative of quicker settlements with suppliers. Following this, there was a marked increase in the payment days, reaching a maximum of 117 days by December 31, 2023. This reflects a lengthening of the company's payment cycle. In later periods, the payment duration gradually decreased to around 102 days by mid-2025 but still signifies extended payment terms compared to the earliest quarters.

Payables Turnover Ratio

The ratio peaked in late 2020 and then declined sharply through 2023, before experiencing a mild recovery.

Average Payables Payment Period

The number of days to pay suppliers decreased initially, then increased substantially, peaking in late 2023, followed by a slight decline but remaining elevated.

Relationship Between Metrics

There is an inverse correlation between the two metrics, consistent with standard financial principles: higher turnover corresponds with shorter payment periods, and vice versa.

Implications

The initial improvement in payables turnover suggested strengthening cash outflow efficiency, while the subsequent decline and lengthening payment periods could indicate strategic supplier payment deferral or temporary liquidity management measures. The recent stabilization may reflect an adjustment to new operating conditions or financial policies.

Average Inventory Processing Period

The average inventory processing period demonstrates a general upward trend from March 2021 onward. Starting at 139 days, it gradually increases over subsequent quarters, reaching 345 days by June 2025. This indicates a lengthening time for inventory turnover, suggesting either slower movement of stock or changes in inventory management practices.

Average Receivable Collection Period

The average receivable collection period fluctuates but largely stays within a narrow range between 51 and 64 days. There is no clear upward or downward trend, indicating that the company's efficiency in collecting receivables remains relatively stable over the analyzed periods.

Average Payables Payment Period

The average payables payment period shows more volatility. It begins around 79 days in March 2021, decreases to a low of 44 days by December 2021, then increases steadily to peak at around 117 days in December 2023 before declining slightly to around 102 days by June 2025. This suggests variability in the company's payment timing to suppliers, including periods of faster payment and others with extended payment timings.

Cash Conversion Cycle

The cash conversion cycle exhibits a notable increasing trend, starting around 114 days in March 2021 and rising consistently to reach approximately 304 days by June 2025. This increase is driven primarily by the rising inventory processing period and the fluctuating but generally stable receivable periods combined with an initially decreasing then rising payable period. The elongation of the cash conversion cycle may imply higher working capital requirements and reduced liquidity efficiency.