Western Digital Corp. (NASDAQ:WDC)

Inventory Turnover

The inventory turnover ratio shows a declining trend over the six-year period, decreasing from 4.4 in 2018 to 2.82 in 2023. This indicates that the company is turning over its inventory less frequently, suggesting potential inventory management challenges or slower sales relative to inventory levels.

Receivables Turnover

The receivables turnover ratio exhibited significant fluctuations. It peaked at 13.76 in 2019 but then declined sharply to 7.03 in 2020. The ratio remained relatively stable afterward, with minor variations, ending at 7.71 in 2023. This pattern indicates varying effectiveness in collecting receivables over time, with improved collection efficiency in 2019 but a general decline and some recovery in subsequent years.

Payables Turnover

The payables turnover ratio increased from 5.71 in 2018 to 8.07 in 2023, with some oscillations in the interim years. The trend indicates that the company has generally accelerated its payments to suppliers over the period, potentially optimizing supplier relationships or negotiating shorter payment terms.

Working Capital Turnover

Working capital turnover ratio demonstrates a gradual increase from 3.34 in 2018 to 5.02 in 2023. This improving trend suggests enhanced efficiency in utilizing working capital to generate revenue.

Average Inventory Processing Period

The average number of days to process inventory has risen from 83 days in 2018 to 129 days in 2023. This increase aligns with the declining inventory turnover and implies that inventory remains on hand for longer durations, which could impact liquidity and storage costs.

Average Receivable Collection Period

This metric fluctuated considerably; it declined notably from 39 days in 2018 to 27 days in 2019, then increased to a peak of 54 days in 2022 before slightly reducing to 47 days in 2023. The longer collection periods in recent years might indicate relaxed credit policies or difficulties in collecting receivables promptly.

Operating Cycle

The operating cycle lengthened steadily, increasing from 122 days in 2018 to 176 days in 2023. This change reflects a slower overall conversion of inventory and receivables into cash.

Average Payables Payment Period

The average period to pay suppliers reduced from 64 days in 2018 to 45 days in 2023, with some variability in between. The decline suggests a strategic move towards quicker payments, which correlates with the rising payables turnover ratio.

Cash Conversion Cycle

The cash conversion cycle extended notably from 58 days in 2018 to 131 days in 2023. This increase highlights a growing imbalance in the company's cash flow management, where the time lag between outflows and inflows of cash has lengthened, potentially impacting liquidity.

Cost of Revenue

The cost of revenue remained relatively stable from 2018 through 2022, fluctuating modestly around the range of approximately $12.8 billion to $13 billion. However, there was a notable decline in 2023, where the cost dropped significantly to around $10.4 billion, marking a substantial decrease compared to previous years.

Inventories

Inventories showed an increasing trend over the entire period under review. Beginning at approximately $2.94 billion in 2018, inventories rose steadily each year, reaching about $3.70 billion by 2023. This consistent increase suggests an accumulation of stock or possibly a strategic build-up in inventory levels.

Inventory Turnover Ratio

The inventory turnover ratio exhibited a declining trend throughout the period. Starting at 4.4 in 2018, this ratio decreased year-over-year, dropping to 2.82 by 2023. This decline indicates that inventories are being sold or used at a slower rate, which combined with the rising inventory levels, may imply growing challenges in inventory management or shifts in demand patterns.

The financial data indicates several notable trends over the fiscal years from 2018 to 2023. There is a clear fluctuation in net revenue, which initially decreased from 20,647 million USD in 2018 to 16,569 million USD in 2019. Revenue then showed modest recovery and relative stability in 2020 and 2021, followed by an increase to 18,793 million USD in 2022 before experiencing a significant decline to 12,318 million USD in 2023.

Accounts receivable, net, exhibited considerable variation during the same period. After dropping from 2,197 million USD in 2018 to 1,204 million USD in 2019, it increased substantially over the next few years, peaking at 2,804 million USD in 2022 before decreasing again to 1,598 million USD in 2023. This pattern suggests volatility in the company's credit sales or collection efficiency.

The receivables turnover ratio highlights changes in the efficiency of collecting accounts receivable. The ratio increased sharply from 9.4 in 2018 to a high of 13.76 in 2019, indicating faster collection during that year. Subsequently, the ratio declined steadily to 6.7 in 2022, pointing to slower collections relative to prior years. Slight improvement was observed in 2023, with the ratio rising to 7.71, although it remains below earlier peak levels.

Revenue, net

Presented a declining trend initially, followed by recovery and growth until 2022, then a pronounced reduction in 2023.

Accounts receivable, net

Reflected considerable fluctuations, with an initial decrease, significant mid-period increase, and reduction in the latest year.

Receivables turnover ratio

Showed a peak in collection efficiency in 2019, a decline over the next few years, and slight recovery in 2023.

Overall, the data suggests that the company experienced variable revenue performance and changing efficiency in managing receivables. The decrease in revenue and receivables turnover ratio in the most recent year may require attention to cash flow management and operational improvements.

Cost of Revenue

The cost of revenue shows a fluctuating trend over the observed periods. It initially decreased slightly from $12,942 million in mid-2018 to $12,817 million in mid-2019. It then increased marginally to $12,955 million in mid-2020 before declining to $12,401 million in mid-2021. A slight rise occurred again in mid-2022, reaching $12,919 million, followed by a significant decrease to $10,431 million in mid-2023. Overall, the cost of revenue demonstrates variability with a notable reduction in the latest period.

Accounts Payable

Accounts payable decreased from $2,265 million in mid-2018 to $1,567 million in mid-2019, reflecting a substantial reduction. It moderately increased to $1,945 million in mid-2020, remained relatively stable around $1,900 million in mid-2021 and mid-2022, and then declined sharply to $1,293 million in mid-2023. This pattern indicates some volatility in payables with a general downward trend toward the end of the period.

Payables Turnover Ratio

The payables turnover ratio showed variability across the periods. It increased from 5.71 in mid-2018 to a peak of 8.18 in mid-2019, suggesting improved efficiency in paying suppliers. Then it declined to 6.66 in mid-2020 and remained around mid-6 levels over the next two years. In mid-2023, the ratio rose again to 8.07, nearing the earlier peak. This implies fluctuating but generally efficient management of accounts payable, with some improvement in recent periods.

Working Capital

The working capital exhibited a generally declining trend over the six-year period, beginning at $6182 million in mid-2018 and decreasing to $2452 million by mid-2023. The decline was more pronounced in the last two years, with working capital reducing from $4216 million in 2022 to $2452 million in 2023.

Revenue, Net

Net revenue showed fluctuations without a clear upward or downward trajectory over the analyzed period. It started at $20,647 million in mid-2018, saw a decrease to $16,569 million in 2019, then remained relatively steady through 2021, with a slight increase to $18,793 million in 2022 before dropping sharply to $12,318 million in 2023.

Working Capital Turnover

The working capital turnover ratio generally increased over the examined timeframe, moving from 3.34 times in 2018 to 5.02 times by 2023. Despite minor fluctuations, the ratio showed an upward trend, suggesting an improvement in the efficiency of using working capital to generate sales, especially noticeable in the sharp increase in the last two years.

Summary of Trends

The period witnessed a significant reduction in working capital alongside a declining level of net revenue in the final year. Despite this, the increasing working capital turnover ratio indicates enhanced efficiency in utilizing working capital to produce revenue. However, the sharp decrease in revenue in the most recent year could imply external challenges or operational issues impacting overall performance.

Inventory Turnover

The inventory turnover ratio shows a general declining trend over the observed periods. Starting at 4.4 in June 2018, it decreased to 3.9 in June 2019, then slightly increased to 4.22 in July 2020 before steadily falling to 2.82 by June 2023. This indicates the company has been turning its inventory over fewer times per year, suggesting slower inventory movement or increased stock levels relative to sales.

Average Inventory Processing Period

The average inventory processing period exhibits an increasing trend throughout the period. It rose from 83 days in June 2018 to 93 days in June 2019, then slightly declined to 86 days in July 2020. Afterward, it increased notably to 106 days in July 2021, remained high at 103 days in July 2022, and further lengthened to 129 days in June 2023. This extension indicates that the company is taking increasingly longer to convert its inventory into sales.

Summary of Trends

The inverse movement between the inventory turnover ratio and the average inventory processing period aligns logically, as a lower inventory turnover corresponds with a longer inventory processing time. The trend suggests that over the years, the company's inventory management might be becoming less efficient, potentially leading to higher holding costs and risks related to obsolete stock. This trend highlights a growing challenge in managing inventory levels effectively to match sales demand.

Receivables Turnover

The receivables turnover ratio exhibits significant fluctuations across the periods. It increased notably from 9.4 in 2018 to a peak of 13.76 in 2019, indicating improved efficiency in collecting receivables during that year. However, from 2019 onward, the ratio declined sharply to 7.03 in 2020, followed by minor fluctuations, reaching 7.71 in 2023. This suggests a general decrease in the speed of receivables collection after 2019, with some slight recovery in the most recent period.

Average Receivable Collection Period

The average receivable collection period inversely reflects the trend observed in the receivables turnover ratio. It dropped significantly from 39 days in 2018 to 27 days in 2019, depicting quicker collection of receivables during that year. Subsequently, the collection period extended to 52 days in 2020, and remained relatively elevated around 49 to 54 days through to 2022, before slightly improving to 47 days in 2023. This pattern corroborates the deterioration in receivables management efficiency after 2019, although some improvement is visible at the end of the timeline.

Overall Insights

The data reveals that the company’s receivables management was most efficient in 2019, as evidenced by the highest turnover ratio and the lowest collection period. Following that year, there was a marked decline in efficiency, with slower conversion of receivables into cash. Although the receivables turnover shows minor recovery in 2023, the collection period remains elevated compared to the pre-2019 levels. This could imply potential challenges in credit management or changes in customer payment behavior affecting liquidity.

The analysis of the company's inventory and receivables management over the six-year period reveals notable trends in operational efficiency and cash flow conversion.

Average Inventory Processing Period

This metric shows an overall increasing trend from 83 days in mid-2018 to 129 days by mid-2023. After a slight rise from 83 to 93 days between 2018 and 2019, the period fluctuated, reaching a significant peak in 2023. The increase in days indicates that inventory turnover has slowed down over time, potentially impacting working capital efficiency negatively.

Average Receivable Collection Period

The collection period fluctuates throughout the years, starting at 39 days in 2018, dipping to a low of 27 days in 2019, then generally increasing to a peak of 54 days in 2022, before improving slightly to 47 days in 2023. This variability suggests periodic changes in credit policies or customer payment behavior, with the recent decrease hinting at a modest improvement in receivables management.

Operating Cycle

The operating cycle lengthens consistently over the period, from 122 days in 2018 to 176 days in 2023. This gradual extension reflects the combined impact of the longer inventory processing period and the fluctuating receivable collection period. The upward trend suggests a slower conversion of inventory and receivables into cash, which could affect liquidity and operational cash flow.

Overall, the company experienced an elongation in both inventory holding and overall operating cycles, indicating slower asset turnover and possibly heightened risk in working capital management. Although receivable collection periods show some improvement in the most recent year, the lengthening operating cycle poses challenges for cash flow optimization. Management may need to focus on strategies to reduce inventory days and enhance receivable collections to improve liquidity.

Payables turnover trend

The payables turnover ratio demonstrates variability over the observed periods. Initially, it increased sharply from 5.71 in mid-2018 to a peak of 8.18 in mid-2019, followed by a decline to 6.66 in mid-2020 and a further slight decrease to 6.41 in mid-2021. Subsequently, it showed a moderate rise to 6.79 in mid-2022 and then a more pronounced increase to 8.07 in mid-2023. This pattern indicates fluctuations in the frequency of payables settlements, with notable acceleration in 2019 and again in 2023.

Average payables payment period trend

The number of days for the average payables payment period inversely correlates with the turnover ratio, reflecting payment efficiency. It decreased significantly from 64 days in mid-2018 to 45 days in mid-2019, suggesting faster payments. This period then rose to 55 days in mid-2020 and slightly increased again to 57 days in mid-2021, indicating a slowing in payment pace. In 2022, the period shortened to 54 days and returned to 45 days in mid-2023, pointing to improvements in payment timeliness.

Combined insights

Overall, the data reveals alternating trends in payment practices, with intervals of accelerated payments followed by slower periods. The two metrics are inversely related, which is typical as a higher payables turnover corresponds with shorter payment periods. The most recent data from mid-2023 suggests a return to more prompt settlement of payables, aligning with the highest turnover ratio in the observed timeframe.

Average Inventory Processing Period

The average inventory processing period exhibited an overall increasing trend over the analyzed years. Beginning at 83 days in mid-2018, it rose to 93 days in 2019, then showed a slight decline to 86 days in 2020. From 2020 onwards, the period increased more notably, reaching 106 days in 2021 and slightly decreasing to 103 days in 2022, before rising again to 129 days in mid-2023. This suggests a lengthening duration for inventory turnover, potentially indicating slower inventory movement or increased inventory levels.

Average Receivable Collection Period

The average receivable collection period displayed some fluctuations without a clear upward or downward trajectory. It dropped from 39 days in 2018 to 27 days in 2019, representing an improvement in the collection efficiency. However, it then increased to 52 days in 2020, followed by minor decreases to 49 days in 2021, a rise to 54 days in 2022, and a subsequent reduction to 47 days in 2023. These fluctuations suggest varying collection efficiency, with periods of slower and faster receivables turnover.

Average Payables Payment Period

The average payables payment period showed a general declining trend across the period analyzed. Initially, it was 64 days in 2018 and decreased significantly to 45 days in 2019. It slightly increased to 55 days in 2020 and 57 days in 2021, before dropping again to 54 days in 2022 and further down to 45 days in 2023. This pattern indicates a tendency towards more prompt payment of payables over time, especially notable when comparing the earliest and latest years.

Cash Conversion Cycle

The cash conversion cycle, representing the net time interval between cash outlay and cash recovery, showed a marked upward trend. Starting at 58 days in 2018, it increased to 75 days in 2019 and continued rising to 83 days in 2020. The upward trajectory intensified through 2021 and 2022, reaching 98 and 103 days respectively, before culminating at 131 days in mid-2023. This increasing phase indicates a lengthening period for the company to convert investments in inventory and other resources back into cash, reflecting increased operational cash flow constraints or changes in working capital management efficiency.