Albemarle Corp. (NYSE:ALB)

The financial data reflects various operational efficiency metrics over the five-year period. Several notable trends and changes are discernible across the key ratios and periods.

Inventory turnover

There is a gradual decrease in the inventory turnover ratio from 3.08 in 2018 to 2.05 in 2022, indicating slower inventory movement and a potential buildup of stock over time.

Receivables turnover

The receivables turnover ratio shows a consistent upward trend from 5.57 in 2018 to 6.15 in 2022, suggesting improved effectiveness in collecting receivables and a shorter collection period.

Payables turnover

A decline in payables turnover is evident, dropping from 4.13 in 2018 to 2.07 in 2022, implying that the company is taking longer to pay its suppliers over the years.

Working capital turnover

This ratio experienced significant fluctuations, starting at 4.14 in 2018, peaking sharply at 24.9 in 2021, and then declining to 2.99 in 2022. The spike in 2021 is unusual and may reflect exceptional circumstances affecting working capital efficiency during that year.

Average inventory processing period (days)

The number of days to process inventory gradually increased from 119 days in 2018 to 178 days in 2022, consistent with the declining inventory turnover and indicating slower inventory movement.

Average receivable collection period (days)

There is a steady improvement in collection efficiency, with the average collection period decreasing from 66 days in 2018 to 59 days in 2022.

Operating cycle (days)

The operating cycle shows a slight increase in the early years, fluctuating between 182 and 190 days until 2021, then rising noticeably to 237 days in 2022, indicating a lengthening of the total time taken from inventory acquisition to cash collection.

Average payables payment period (days)

The average time taken to settle payables has increased significantly from 88 days in 2018 to 176 days in 2022, highlighting the company’s extended credit terms or delayed payments to suppliers.

Cash conversion cycle (days)

This key liquidity measure decreased overall from 97 days in 2018 to 61 days in 2022, with some volatility in between. Despite slower inventory turnover, the reduction suggests improved cash flow management, likely driven by faster receivables collection and longer payment terms to suppliers.

Overall, the data reveals a trend toward slower inventory turnover and longer payment periods, balanced by improved receivables collection efficiency. These shifts have led to a shortened cash conversion cycle, which may enhance liquidity despite certain operational slowdowns. The extreme anomalies in working capital turnover during 2021 warrant further investigation to understand underlying drivers.

Cost of Goods Sold (COGS)

The cost of goods sold demonstrated fluctuations over the five-year period. Starting at approximately 2.16 billion US dollars at the end of 2018, COGS increased slightly in 2019 to around 2.33 billion, followed by a decline to about 2.13 billion in 2020. In 2021, the figure rose again to roughly 2.33 billion before experiencing a substantial surge to approximately 4.25 billion in 2022. This sharp increase in 2022 suggests a significant rise in the company's production costs or sales volume during that year.

Inventories

Inventory levels showed a consistent upward trend from 2018 through 2022. Starting at approximately 700.5 million US dollars at the end of 2018, inventories increased gradually each year to nearly 813 million by 2021. In 2022, inventories more than doubled, reaching around 2.08 billion US dollars. This substantial buildup in inventory by the end of 2022 indicates potential stockpiling or increased procurement activities, possibly in anticipation of higher demand or supply chain considerations.

Inventory Turnover Ratio

The inventory turnover ratio, which measures how many times inventory is sold and replaced over a period, showed a declining trend throughout the timeframe. It decreased from 3.08 in 2018 to 3.03 in 2019, then to 2.84 in 2020 and 2.87 in 2021. The ratio dropped further to 2.05 in 2022, representing the lowest turnover rate within the period analyzed. This declining turnover ratio, coinciding with the marked increase in inventory levels in 2022, suggests slower movement of inventory relative to sales or production, potentially indicating overstocking or decreased efficiency in inventory management.

Overall Insights

The data reflects significant changes in both the cost structure and inventory management over the five years. While COGS remained relatively stable from 2018 to 2021 with some fluctuation, the sharp rise in 2022 implies notable changes in production costs or sales activity. Concurrently, inventory accumulation markedly increased in 2022, which, combined with a decreasing inventory turnover ratio, could indicate challenges in inventory utilization or adjustments in business strategy. These trends merit closer examination to understand underlying causes such as market conditions, supply chain disruptions, or shifts in operational practices.

Net Sales

Net sales demonstrated a fluctuating trend from 2018 through 2021, initially increasing from approximately 3.37 billion USD in 2018 to nearly 3.59 billion USD in 2019. This was followed by a decline to about 3.13 billion USD in 2020, and a moderate recovery to 3.33 billion USD in 2021. In 2022, there was a significant surge in net sales, reaching over 7.32 billion USD, more than doubling the previous year's figure, indicating a strong growth phase or potentially significant changes in market conditions, pricing, or volume.

Trade Accounts Receivable, Net

The value of trade accounts receivable, net of allowances for doubtful accounts, showed a generally increasing trend over the period. It rose slightly from approximately 606 million USD in 2018 to 613 million USD in 2019, then decreased to about 531 million USD in 2020. A recovery followed in 2021 with a value of roughly 557 million USD. In 2022, the trade accounts receivable more than doubled compared to the previous year, reaching nearly 1.19 billion USD. This substantial increase reflects the higher sales volume or potentially extended credit terms.

Receivables Turnover Ratio

The receivables turnover ratio, which measures how efficiently the company collects its receivables, displayed a consistent upward trend throughout the period. Starting at 5.57 in 2018, it increased progressively each year, reaching 6.15 by 2022. This improvement suggests enhanced efficiency in the collection process or a reduction in the average collection period despite the substantial growth in receivables in 2022.

Summary of Observations

Overall, the data exhibit a generally positive trajectory in sales and receivables management. Although net sales showed some volatility between 2018 and 2021, they experienced a marked increase in 2022. The growth in trade receivables corresponds closely to the increased sales, while the rising receivables turnover ratio indicates sustained or improved collection efficiency. The company appears to have balanced growth and credit management effectively, adapting to changing market conditions over the period analyzed.

Cost of Goods Sold (COGS)

The cost of goods sold demonstrated a fluctuating trend over the five-year period. Starting at approximately 2.16 billion USD in 2018, it increased slightly in 2019 to 2.33 billion USD, then decreased to around 2.13 billion USD in 2020. Subsequently, it rose again in 2021 to nearly 2.33 billion USD, followed by a significant surge in 2022 to approximately 4.25 billion USD. This marked increase in the final year indicates intensified production costs or expanded operations.

Accounts Payable

Accounts payable showed overall growth with some volatility. From a base of about 523 million USD in 2018, it increased modestly to 574 million USD in 2019 before declining to 483 million USD in 2020. In 2021, there was a notable rise to approximately 648 million USD, culminating in a sharp increase to over 2.05 billion USD in 2022. The substantial increase in 2022 suggests either extended credit terms, higher procurement levels, or increased reliance on suppliers.

Payables Turnover Ratio

The payables turnover ratio, representing the frequency of payments to suppliers, generally declined over the period. Starting at 4.13 in 2018, it remained relatively stable through 2019 (4.06) and 2020 (4.42), then decreased to 3.6 in 2021 and fell sharply to 2.07 in 2022. This downward trend indicates slower payment cycles to suppliers, possibly reflecting lengthened payment terms or cash flow management strategies during the later years.

Working Capital

The working capital exhibited a fluctuating pattern over the analyzed period. Starting at 815,248 thousand US dollars in 2018, it slightly increased in 2019 to 816,113 thousand US dollars. A significant decline occurred in 2020, with working capital dropping to 404,335 thousand US dollars, followed by a further decrease to 133,646 thousand US dollars in 2021. However, the year 2022 showed a substantial recovery, with working capital rising sharply to 2,445,902 thousand US dollars, the highest value in the given period.

Net Sales

Net sales demonstrated variability but an overall increasing trend. The sales value started at 3,374,950 thousand US dollars in 2018 and increased moderately to 3,589,427 thousand US dollars in 2019. In 2020, net sales declined to 3,128,909 thousand US dollars, then slightly recovered to 3,327,957 thousand US dollars in 2021. A marked increase was observed in 2022, with net sales more than doubling to 7,320,104 thousand US dollars compared to the previous year.

Working Capital Turnover Ratio

The working capital turnover ratio, which measures the efficiency with which working capital is used to generate sales, showed considerable volatility. It began at 4.14 in 2018 and increased modestly to 4.4 in 2019. In 2020, the ratio rose significantly to 7.74 and then escalated sharply to 24.9 in 2021, indicating a period of high sales relative to the relatively low working capital during those years. In 2022, this ratio declined substantially to 2.99, suggesting that the large increase in working capital outpaced the increase in net sales.

Overall Insights

The data reveals significant fluctuations in working capital and net sales, with a notable dip in working capital during 2020 and 2021, concurrent with relatively stable net sales. The extraordinary increase in both working capital and net sales in 2022 represents a pivotal change in the financial dynamics. The working capital turnover ratio's high peak in 2021 indicates exceptional efficiency or constrained working capital relative to sales before normalizing in 2022.

Inventory Turnover Ratio

The inventory turnover ratio shows a declining trend over the five-year period. Beginning at 3.08 in 2018, it decreased slightly to 3.03 in 2019, followed by further reductions to 2.84 in 2020 and 2.87 in 2021. The most significant decline occurred in 2022, when the ratio dropped sharply to 2.05. This downward trend indicates that the company is turning over its inventory less frequently each year, suggesting slower sales or increased inventory levels relative to cost of goods sold.

Average Inventory Processing Period

The average inventory processing period, measured in number of days, exhibits an increasing trend over the same timeframe. It remained relatively stable around 119 to 128 days from 2018 through 2020, with values of 119, 120, and 128 respectively. There was a slight improvement in 2021 at 127 days, followed by a pronounced increase to 178 days in 2022. This rise indicates that inventory is being held for a longer period before being sold, which aligns with the observed decrease in inventory turnover ratio.

Receivables Turnover

The receivables turnover ratio exhibits a consistent upward trend over the analyzed five-year period. Starting at 5.57 in 2018, it gradually increased each year, reaching 6.15 by the end of 2022. This indicates a steady improvement in the company's efficiency in collecting its receivables, reflecting potentially better credit policies or improved collections processes.

Average Receivable Collection Period

The average receivable collection period decreased progressively throughout the same timeframe. Beginning at 66 days in 2018, the collection period shortened to 59 days by the end of 2022. This reduction aligns with the increase in the receivables turnover ratio, further illustrating enhanced effectiveness in converting receivables into cash more quickly.

Overall Trend

Overall, the data suggests that the company has been increasingly efficient in managing its credit and collections. The simultaneous improvement in receivables turnover and reduction in collection period point to improved liquidity management, which may positively impact cash flow and operational flexibility.

Average Inventory Processing Period

The average inventory processing period exhibited a generally increasing trend over the analyzed years. Starting at 119 days at the end of 2018, it remained relatively stable through 2019 at 120 days before rising to 128 days in 2020. This period held constant in 2021 at 127 days but then experienced a significant increase to 178 days by the end of 2022. This sharp rise in 2022 suggests a notable slowdown in inventory turnover or an accumulation of inventory.

Average Receivable Collection Period

This period showed a gradual decline across the timeframe. Beginning at 66 days at the close of 2018, the receivable collection period decreased to 62 days in both 2019 and 2020, further dropping slightly to 61 days in 2021 and reaching 59 days in 2022. The steady reduction indicates improved efficiency in collecting accounts receivable, reflecting a shorter duration for converting receivables into cash.

Operating Cycle

The operating cycle followed a fluctuating but overall upward trajectory over the five-year span. Starting at 185 days in 2018, it decreased slightly to 182 days in 2019 but increased to 190 days in 2020 and then marginally declined to 188 days in 2021. In 2022, the operating cycle experienced a substantial increase to 237 days. This extended operating cycle aligns with the increase in inventory processing days, outweighing the modest improvements in receivable collection, indicating that the overall duration from inventory acquisition to cash collection has lengthened significantly in the most recent year.

Payables Turnover

The payables turnover ratio exhibits a declining trend over the analyzed period. Starting at 4.13 in 2018, the ratio slightly decreased to 4.06 in 2019 but then increased to 4.42 in 2020. However, it sharply declined afterwards to 3.6 in 2021 and further to 2.07 in 2022. This indicates that the company has been extending the time it takes to pay its suppliers, as a lower turnover ratio signifies slower payments.

Average Payables Payment Period

The average payables payment period increased significantly from 88 days in 2018 to 176 days in 2022. There was a slight rise from 88 days to 90 days between 2018 and 2019, followed by a reduction to 83 days in 2020. Subsequently, the payment period expanded markedly to 102 days in 2021 and almost doubled to 176 days in 2022. This trend complements the payables turnover ratio decline and confirms the company's growing duration to settle its payables.

Overall Analysis

The overall trends indicate that the company has been progressively extending its accounts payable cycle over the five-year period, especially notable in the last two years. This extension could suggest strategic efforts to improve liquidity or manage cash flows more conservatively by delaying payments. Such a trend warrants further examination regarding its impact on supplier relationships and working capital management.

Average Inventory Processing Period

The inventory processing period exhibited a gradual increase from 119 days in 2018 to 128 days in 2020, followed by a slight decline to 127 days in 2021. However, a substantial rise occurred in 2022, reaching 178 days. This indicates a significant elongation in the time taken to process inventory in the latest period.

Average Receivable Collection Period

The receivable collection period showed a consistent downward trend from 66 days in 2018 to 59 days by 2022. The reduction was steady but moderate, suggesting improved efficiency in collecting receivables over the five-year span.

Average Payables Payment Period

The payables payment period displayed more variability over the period. Starting at 88 days in 2018, it increased modestly to 90 days in 2019, then decreased to 83 days in 2020. A sharp rise followed with 102 days in 2021 and a pronounced jump to 176 days in 2022. This suggests an extension in payment terms or delayed payments, particularly significant in the most recent year.

Cash Conversion Cycle

The cash conversion cycle decreased from 97 days in 2018 to 92 days in 2019, then increased to 107 days in 2020. Subsequently, it fell to 86 days in 2021 and further declined to 61 days by 2022. The downward trend in the last two years implies improved cash flow efficiency despite the rising inventory processing and payables payment periods.