Allergan Inc. (NYSE:AGN.)

Inventory Turnover

The inventory turnover ratio exhibits a declining trend from 3.15 in 2010 to 2.74 in 2012, followed by a modest recovery to 2.85 in 2014. This indicates a general slowdown in inventory efficiency over the period, with a slight improvement in the later years.

Receivables Turnover

Receivables turnover remains relatively stable, fluctuating slightly between 7.02 and 7.79. After a minor dip in 2013, it increases in 2014, suggesting a consistent ability to collect receivables with some improvement in the most recent year.

Payables Turnover

Payables turnover shows variability, increasing from 3.24 in 2010 to 3.74 in 2011, then declining to 2.81 in 2013 before a slight recovery to 2.93 in 2014. This pattern suggests changing payment policies or supplier terms over the years, with slower payment rates towards the end.

Working Capital Turnover

There is a clear decreasing trend in working capital turnover, falling steadily from 1.95 in 2010 to 1.34 in 2014. This decline indicates reduced efficiency in using working capital to generate sales.

Average Inventory Processing Period

The average inventory processing period lengthens from 116 days in 2010 to a peak of 133 days in 2012, then gradually shortens to 128 days by 2014. This suggests that inventory is held longer during the middle years before slight improvement in turnover speed.

Average Receivable Collection Period

The average period to collect receivables hovers near 50 days, increasing slightly to 52 days in 2013 before decreasing to 47 days in 2014. This indicates a modest improvement in receivables management in the most recent year.

Operating Cycle

The operating cycle extends from 165 days in 2010 to a maximum of 183 days in 2013, then decreases to 175 days in 2014. This reflects the combined impact of inventory holding and receivables collection periods lengthening and then slightly shortening.

Average Payables Payment Period

The payables payment period decreases from 112 days in 2010 to 98 days in 2011 but then rises sharply to 130 days in 2013 before declining slightly to 125 days in 2014. This trend suggests that the company delayed payments more in later years, potentially improving cash flow.

Cash Conversion Cycle

The cash conversion cycle exhibits variability, increasing from 53 days in 2010 to 74 days in 2011, then declining to 50 days in 2014. This pattern implies an initial lengthening of the time to convert investments in inventory and receivables into cash, followed by improved efficiency in converting cash in the final years.

Cost of Sales

The cost of sales shows a consistent upward trend over the five-year period, increasing from $722 million in 2010 to $842.4 million in 2014. This reflects a gradual rise in production or procurement expenses, which could suggest growth in sales volume or increased input costs.

Inventories

Inventories also increased steadily from $229.4 million in 2010 to $296 million in 2014. This steady build-up of inventory might indicate a preparation for higher sales demand or longer production cycles, although it could also imply slower inventory turnover as stock levels rise.

Inventory Turnover Ratio

The inventory turnover ratio declined from 3.15 in 2010 to a low of 2.74 in 2012 before partially recovering to 2.85 by 2014. This trend suggests that the company was less efficient in managing its inventory during 2011 and 2012 but made some improvements by 2014. Despite the partial recovery, the turnover ratio remained below the initial level, indicating that inventory was being held longer relative to sales than in 2010.

Summary Insights

Overall, the increase in cost of sales and inventories indicates growth in the scale of operations. However, the declining inventory turnover ratio over most of the period raises concerns about the efficiency of inventory management. The partial recovery towards the end of the period is positive but still points to a need for further optimization to maintain liquidity and reduce holding costs.

Product net sales

Over the five-year period, product net sales demonstrated a consistent upward trend, increasing from $4,819,600 thousand in 2010 to $7,126,100 thousand in 2014. This represents a cumulative growth indicating expanding market presence or successful sales strategies.

Trade receivables, net

Trade receivables showed a steady increase from $647,300 thousand in 2010 to $914,500 thousand in 2014. This growth aligns with the rising sales, suggesting that higher sales volumes may have contributed to the increase in outstanding receivables.

Receivables turnover

The receivables turnover ratio remained relatively stable throughout the period, fluctuating between 7.02 and 7.79. The slight decrease observed in 2013 indicates a minor slowdown in the efficiency of collecting receivables, but the ratio rebounded in 2014, reflecting improved collection performance.

Cost of Sales

The cost of sales, excluding amortization of intangible assets, shows a consistent upward trend from 2010 to 2014. It increased steadily each year, starting at 722,000 thousand US dollars in 2010 and reaching 842,400 thousand US dollars by 2014. This indicates a gradual rise in the company's direct expenses related to production or procurement over the five-year period.

Accounts Payable

Accounts payable exhibits a somewhat fluctuating pattern. It decreased from 222,500 thousand US dollars in 2010 to 200,400 thousand US dollars in 2011, followed by a significant increase to 233,100 thousand in 2012 and further increases to 283,200 thousand in 2013 and 287,400 thousand in 2014. The general trend from 2011 onwards shows growth in payables, suggesting an increasing reliance on credit from suppliers or delayed payment terms.

Payables Turnover Ratio

The payables turnover ratio experiences variability throughout the period, peaking at 3.74 in 2011, then dropping to 3.33 in 2012, followed by a more pronounced decline to 2.81 in 2013, and a slight recovery to 2.93 in 2014. This ratio indicates the frequency with which payables are paid during the year. The overall decreasing trend from 2011 suggests that the company is taking longer to settle its payables, consistent with the rising accounts payable figures, potentially indicating a strategic extension of payment terms or cash flow management practices.

Working Capital

The data indicates a consistent increase in working capital over the five-year period. Starting at approximately $2.47 billion in 2010, working capital expanded steadily to reach around $5.31 billion by the end of 2014. This upward trend reflects a growing liquidity position, suggesting improved short-term financial health and the capacity to cover current liabilities more comfortably.

Product Net Sales

Product net sales show a continuous and substantial growth throughout the observed years. Beginning at roughly $4.82 billion in 2010, sales increased each year to attain approximately $7.13 billion by 2014. This progressive increase indicates effective revenue generation and successful market demand for the company's products over the period.

Working Capital Turnover Ratio

Despite the growth in both working capital and sales, the working capital turnover ratio demonstrates a declining pattern, falling from 1.95 in 2010 to 1.34 in 2014. This decrease suggests that sales growth is not keeping pace proportionally with the growth in working capital. Consequently, the efficiency with which working capital is utilized to generate sales has diminished over these years. This trend may warrant further investigation to optimize asset management and improve capital utilization effectiveness.

Overall Insights

The financial data over the five-year span show solid growth in sales and an expanding liquidity base via increased working capital. However, the declining turnover ratio points to potential inefficiencies in converting working capital into sales revenue. The company appears to be accumulating more capital relative to sales, which could imply higher inventory levels, increased receivables, or other factors tying up capital. Monitoring and managing working capital components might be advisable to enhance operational efficiency.

The financial data indicates a gradual decline in inventory turnover over the five-year period, decreasing from 3.15 in 2010 to 2.85 in 2014. This suggests that the company became somewhat less efficient in managing its inventory relative to sales during these years.

Correspondingly, the average inventory processing period increased from 116 days in 2010 to a peak of 133 days in 2012, before experiencing a slight reduction to 128 days by 2014. This rising trend in days inventory is consistent with the decline observed in inventory turnover, indicating that inventory was held longer over time.

Overall, these patterns imply a lengthening of the inventory cycle, which may reflect changes in supply chain management, demand fluctuations, or inventory stocking policies. While there is some improvement after 2012, the average inventory processing period remained elevated compared to the initial year, potentially impacting working capital efficiency.

The analysis of the financial data reveals trends related to the company's receivables management over the five-year period ending in 2014.

Receivables Turnover

The receivables turnover ratio remained relatively stable, fluctuating within a narrow range from 7.02 to 7.79. The ratio slightly declined from 7.45 in 2010 to 7.02 in 2013, indicating a modest slowdown in the frequency of collections. However, in 2014, the ratio improved to 7.79, suggesting enhanced efficiency in converting receivables into cash during that year.

Average Receivable Collection Period

The average collection period exhibited minor variations consistent with the trends in receivables turnover. It increased slightly from 49 days in 2010 to 52 days in 2013, reflecting a marginal extension in the time required to collect receivables. By 2014, this period reduced to 47 days, indicating an improvement in collections speed. Overall, the collection period hovered around 49 to 52 days, with the final year showing the most favorable outcome.

Overall, the data indicates a generally stable receivables management efficiency, with a minor decline in collection speed up to 2013, followed by a notable recovery in 2014 that signifies improvement in the company’s credit and collection policies.

Average Inventory Processing Period

The average inventory processing period exhibited an increasing trend from 116 days in 2010 to a peak of 133 days in 2012. Subsequently, it showed a decline, reaching 128 days by the end of 2014. This pattern suggests an initial lengthening of the time inventory was held, followed by improved efficiency in inventory management or turnover in the latter years.

Average Receivable Collection Period

The average receivable collection period remained relatively stable throughout the analyzed period, fluctuating slightly around the range of 47 to 52 days. Starting from 49 days in 2010, it peaked at 52 days in 2013 before slightly decreasing to 47 days in 2014. This stability indicates consistent credit management policies and collection efforts over the years.

Operating Cycle

The operating cycle showed an upward trend from 165 days in 2010 to a maximum of 183 days in 2013, before decreasing to 175 days in 2014. The increase can be attributed primarily to the lengthening of the inventory processing period, with relatively stable receivable collection periods. The slight reduction in 2014 suggests some improvement in overall operational efficiency.

Payables Turnover

The payables turnover ratio exhibits fluctuations over the five-year period. It increased from 3.24 in 2010 to a peak of 3.74 in 2011, indicating a faster rate of paying suppliers during that year. However, it declined to 3.33 in 2012 and continued a downward trend to its lowest point of 2.81 in 2013, before showing a slight recovery to 2.93 in 2014. Overall, this suggests a general deceleration in the frequency of payments to suppliers after 2011.

Average Payables Payment Period

The average payables payment period, measured in days, moved inversely to the payables turnover ratio, as expected. It decreased from 112 days in 2010 to 98 days in 2011, indicating that payments were being made more quickly. Subsequently, the payment period lengthened steadily to 110 days in 2012, then to 130 days in 2013, before slightly contracting to 125 days in 2014. The increase in days payable outstanding after 2011 suggests the company extended its payment terms or delayed payments to suppliers during these years.

Overall Trend and Insights

The inverse relationship between payables turnover and average payment period is clearly demonstrated, with quicker payments in 2011 and a notable slowdown thereafter. The lengthening of the payable period from 2012 to 2014 may reflect strategic cash flow management decisions, possibly to conserve cash or manage working capital more efficiently. The moderation in these metrics in 2014 indicates a partial reversal or stabilization of the trend observed during the previous two years.

Inventory Processing Period

The average inventory processing period showed an increasing trend from 116 days in 2010 to a peak of 133 days in 2012. Subsequently, it declined slightly to 131 days in 2013 and further to 128 days in 2014, indicating a moderate improvement in inventory turnover after 2012 but still remaining above the 2010 level.

Receivable Collection Period

The average receivable collection period remained relatively stable over the five-year span, fluctuating narrowly between 47 and 52 days. This suggests consistent credit policies and stable collection efficiency during this period.

Payables Payment Period

The average payables payment period exhibited variability, starting at 112 days in 2010, declining to 98 days in 2011, then increasing considerably to 130 days in 2013, before slightly decreasing to 125 days in 2014. This pattern shows a shift toward longer payment terms in the latter years, potentially reflecting changes in supplier negotiations or cash management strategies.

Cash Conversion Cycle

The cash conversion cycle increased markedly from 53 days in 2010 to 74 days in 2011, then decreased gradually to 50 days by 2014. The initial increase indicates a worsening in working capital efficiency, while the subsequent reduction suggests a return to improved liquidity management closer to the 2010 level by the end of the period.