Allergan Inc. (NYSE:AGN.)

The analysis of the quarterly financial ratios reveals several notable trends in the company's operational efficiency and liquidity management from 2010 through 2014.

Inventory Turnover

The inventory turnover ratio shows a gradual decline over the observed periods, beginning at approximately 3.15 in early 2011 and decreasing to around 2.85 by the end of 2014. This trend indicates a slower inventory movement, suggesting that inventory is being held for longer periods as time progresses.

Receivables Turnover

The receivables turnover exhibits some volatility, starting near 7.45 in early 2011, dipping below 6.4 in mid-2012 and 2013, and then increasing again to approximately 7.79 by the end of 2014. This pattern suggests fluctuations in the company’s ability to collect receivables efficiently, with some periods of slower collection followed by improvement towards the later years.

Payables Turnover

The payables turnover ratio increased from about 3.24 in early 2011 to a peak of 3.94 in late 2011 but showed a consistent decline thereafter, reaching around 2.93 by the end of 2014. This decline indicates lengthening periods in paying suppliers, which could reflect strategic cash management or potential issues in settling accounts payable promptly.

Working Capital Turnover

The working capital turnover ratio generally decreased from around 1.95 in early 2011 to approximately 1.34 by the end of 2014. This decline points towards a reduced effectiveness in using working capital to generate sales over time, possibly indicating growing working capital relative to sales.

Average Inventory Processing Period

This period increased gradually from 116 days in early 2011 to around 128 days by the end of 2014, corroborating the decreasing inventory turnover ratio and indicating that the company is holding inventory for longer durations.

Average Receivable Collection Period

The average collection period fluctuated, starting near 49 days in early 2011, increasing to peaks of 57-58 days during 2012 and 2013, and then declining to 47 days by the end of 2014. This suggests periods of slower collections were followed by improved efficiency in receivables management toward the end of the timeframe.

Operating Cycle

The operating cycle lengthened from 165 days in early 2011 to a peak of 192 days in late 2013, before decreasing slightly to 175 days by the end of 2014. The overall increase indicates that the company took longer to convert inventory and receivables into cash before a slight improvement late in the period.

Average Payables Payment Period

The payables payment period shortened from 112 days at the beginning of 2011 to a low of 93 days in late 2011 but then extended significantly to 144 days by late 2013. This lengthening suggests a strategy to delay payments to suppliers, potentially to improve liquidity, before decreasing marginally to around 125 days by the end of 2014.

Cash Conversion Cycle

The cash conversion cycle showed variability, initially increasing from 53 days in early 2011 to a peak of 86 days in mid-2012. Subsequently, it decreased to a low of 48 days in early 2014 before stabilizing around 50-58 days towards the end of 2014. This pattern indicates fluctuations in the company’s overall cash flow efficiency, with some improvement in managing the timing between cash outflows and inflows in the later periods.

In summary, the data reflect a company experiencing longer inventory holding periods and extended payment times to suppliers while facing fluctuations in receivables collection efficiency. These dynamics have resulted in a generally longer operating cycle and working capital turnover decline. However, improvements in receivables collection and cash conversion cycle toward the end of the period suggest some positive adjustments in operational management.

Cost of Sales, Excludes Amortization of Intangible Assets

The cost of sales generally exhibits a moderately fluctuating but overall slightly upward trend over the periods presented. Starting at 170,200 thousand US dollars in March 2010, the cost increased to a peak near 222,200 thousand US dollars in June 2014 before settling around 209,100 thousand US dollars by December 2014.

Within individual years, there are some seasonal variations, with costs tending to peak near mid-year or end-of-year quarters, but the range of fluctuation remains relatively contained. This indicates some consistent operational activity with incremental growth.

Inventories

Inventories show a consistent upward trajectory throughout the reporting periods, increasing from 219,400 thousand US dollars in March 2010 to around 296,000 thousand US dollars by December 2014.

There is a steady buildup of inventories, with only minor fluctuations from quarter to quarter. This increase suggests accumulating stock levels over time, potentially reflecting expansion in product offerings, increased production, or a strategic decision to hold higher inventory levels.

Inventory Turnover Ratio

The inventory turnover ratio is only available from March 2011 onward and reveals a gradual decline over the reporting intervals. Starting with a ratio of 3.15 in March 2011, the ratio decreases to a low of about 2.7 in June 2014 before slightly recovering to approximately 2.85 by December 2014.

This downward trend in turnover ratio corresponds with the rising inventory values, which may suggest that inventory is being held longer relative to the cost of sales. The decline could indicate slower movement of inventory or accumulation of stock that is not being converted to sales at the previous rate.

Summary

The combined data points suggest that while cost of sales has shown moderate growth, inventories have increased more significantly, resulting in a declining inventory turnover ratio. This pattern may imply an accumulation of stock relative to sales, which could affect liquidity and operational efficiency if the trend persists.

Careful monitoring of inventory management and sales pacing would be advisable to ensure that stock levels do not adversely impact working capital or indicate potential overstocking issues. The data supports a scenario where growth in sales cost is not matched proportionally by movement in inventory, hinting at changes in operational dynamics in the latter years.

The financial data reveals several notable trends across the reported quarterly periods.

Product Net Sales

Overall product net sales demonstrate a consistent upward trajectory from the first quarter of 2010 through the end of 2014. Starting at approximately 1,105,800 thousand US dollars in March 2010, sales increased steadily with some fluctuations, reaching a peak near 1,889,000 thousand US dollars by the fourth quarter of 2014. This represents significant growth over the five-year period. Seasonal patterns or quarterly fluctuations are evident but do not disrupt the underlying positive sales trend.

Trade Receivables, Net

The trade receivables balance also shows a general rising pattern over the same timeframe. Beginning at 558,700 thousand US dollars in the first quarter of 2010, the balance rises to about 914,500 thousand US dollars by the final quarter of 2014, with peaks and troughs along the way. Notably, some quarters showed decreases following prior increases, indicating some volatility in accounts receivable management or collections timing. However, the long-term trend is an increase in outstanding receivables correlating with the growing sales figures.

Receivables Turnover Ratio

The receivables turnover ratio, available from the first quarter of 2011 onwards, fluctuates between about 6.3 and 7.8. The ratio does not exhibit a clear steady trend but shows periodic increases and decreases over quarters. Higher values of the ratio indicate faster collection of receivables. The ratio started around 7.45, dipped to approximately 6.29 in late 2014, and then increased again to 7.79 at the end of 2014. This fluctuation suggests variability in receivables collection efficiency over different periods.

In summary, the data indicates growth in sales accompanied by rising trade receivables, reflecting increased business volume. Receivables turnover ratio variations point to changing collection dynamics, with some periods of slower turnover potentially impacting liquidity. Continued monitoring of receivables efficiency alongside sales growth would be prudent to ensure sustained financial health.

The analysis of the financial data reveals several trends and noteworthy patterns regarding cost of sales, accounts payable, and payables turnover over the given quarterly periods.

Cost of Sales, excluding amortization of intangible assets

The cost of sales generally exhibits fluctuations within a range but follows an overall upward trajectory from March 2010 through December 2014. The values start at approximately 170,200 thousand US dollars in the first quarter of 2010, reaching peaks around 222,200 thousand US dollars in the third quarter of 2014. Occasional decreases appear in some quarters such as the slight dip in the fourth quarter of 2010 and the third quarter of 2013; however, these are temporary. A clear seasonal or cyclical pattern is not strongly pronounced, though some quarterly variability exists.

Accounts Payable

Accounts payable demonstrate considerable volatility throughout the periods, with values ranging from near 198,900 thousand US dollars in the second quarter of 2010 to a high of approximately 316,500 thousand US dollars in the third quarter of 2014. From 2010 to mid-2011, accounts payable remain relatively stable in the 190,000 to 220,000 range. Starting late 2011, a rising trend emerges, accelerating substantially in 2013 and peaking in 2014 before slightly declining toward the end of 2014. This upward movement indicates a possible increase in outstanding supplier obligations or delays in payments over time.

Payables Turnover Ratio

The payables turnover ratio, available from March 2011 onwards, shows a declining trend over the analyzed periods. Initially, the ratio fluctuates between approximately 3.24 and 3.94, peaking around the middle of 2011. Since then, a steady decrease is observed, with the turnover falling below 3.0 in late 2013 and stabilizing close to 2.9 by the end of 2014. This decline suggests that the company is taking longer to pay its suppliers or that the accounts payable base is increasing relative to the cost of sales, which aligns with the increase in accounts payable observed in the data.

The analysis of the quarterly financial data reveals several notable trends in working capital, product net sales, and working capital turnover over the period from the first quarter of 2010 through the fourth quarter of 2014.

Working Capital

The working capital exhibits a generally upward trend throughout the observed period. Starting at approximately 2,360,900 thousand US dollars in the first quarter of 2010, it experiences some fluctuations but consistently grows to reach about 5,313,900 thousand US dollars by the last quarter of 2014. A particularly sharp increase can be seen from 2013 onward, suggesting possible expansion or increased liquidity management efforts in recent years.

Product Net Sales

Product net sales follow a pattern of gradual increase over time with some intermittent fluctuations. Sales start at around 1,105,800 thousand US dollars in the first quarter of 2010 and reach approximately 1,889,000 thousand US dollars by the fourth quarter of 2014. Despite occasional dips in certain quarters, the underlying trend is upward, indicating growing revenue from product sales over the nearly five-year span.

Working Capital Turnover Ratio

The working capital turnover ratio shows a declining trajectory after an initial peak of approximately 1.95 in the first quarter of 2011. Over time, this ratio decreases to about 1.34 by the end of 2014. The consistent reduction in turnover ratio may imply that working capital is increasing at a faster rate than sales, potentially reflecting changes in asset efficiency or inventory management.

Overall, the data suggests that while the company is increasing its working capital and product sales, the efficiency in utilizing working capital to generate sales slightly diminishes over the analyzed period. This dynamic calls for further investigation into working capital management strategies to optimize asset utilization without compromising growth.

Inventory Turnover

The inventory turnover ratio shows a general declining trend from March 2011 through December 2014. Initially, the ratio stood at 3.15 in March 2011 and decreased to a low point of 2.7 in March 2014. Following this, a moderate recovery is visible, with the ratio increasing slightly to 2.85 by December 2014. The decrease over the observed period suggests a slower movement of inventory through sales or usage.

Average Inventory Processing Period

Consistent with the inventory turnover trend, the average inventory processing period displays a gradual increase across the same timeframe. Starting at 116 days in March 2011, the period extended to a peak of 135 days in March 2014. Subsequently, a slight reduction is observed, ending at 128 days in December 2014. The lengthening of inventory processing time indicates that inventory remains on hand for longer durations before being sold or utilized.

Overall Analysis

The inverse relationship between the inventory turnover ratio and the average inventory processing period is evident, with turnover decreasing as processing time increases. This pattern may reflect challenges in inventory management or shifts in demand that led to slower inventory movement. The modest recovery in turnover and decline in processing period toward the end of 2014 may indicate improved inventory control or sales conditions during that period.

Receivables Turnover

The receivables turnover ratio shows fluctuations throughout the period observed. Starting at 7.45 at the end of March 2011, it decreases slightly to 6.9 by September 2011, followed by a recovery reaching 7.39 by December 2011. In 2012, the ratio generally remains around 6.38 to 6.43 in the first three quarters but increases to 7.47 by the end of the year. In 2013, the ratio declines again, ranging between 6.5 and 6.63 for most of the year before improving slightly to 7.02 in the last quarter. In 2014, there is an overall upward trend from 6.45 in the first quarter up to 7.79 by the end of December, indicating an improvement in the efficiency of receivables collection towards the end of the period.

Average Receivable Collection Period

The average collection period in days inversely mirrors the receivables turnover ratio. It starts at 49 days in March 2011 and rises to 53 days by September 2011, then decreases back to 49 days at year-end. In 2012, the collection period worsens, increasing consistently to 57 days during the middle and end quarters, suggesting slower collection of receivables. In 2013, the period remains elevated, fluctuating between 55 and 57 days for most of the year but slightly improves to 52 days in the final quarter. During 2014, the collection period fluctuates with an initial increase to 58 days by September followed by a decrease to 47 days at the end of the year, indicating an improvement in collection efficiency in the final quarter after a period of slower receivable turnover.

Overall Analysis

The data indicates variability in the company's ability to manage receivables efficiently. The fluctuations in both receivables turnover and collection period suggest periodic challenges in maintaining consistent collection speeds. However, the year-end improvement in 2014 points towards strengthened receivables management practices or improved credit control policies in that period. The inverse relationship between the turnover ratio and collection period is consistent throughout the timeframe, reflecting normal operational dynamics in receivables management.

Average Inventory Processing Period

The average inventory processing period shows a generally increasing trend over the observed periods. Starting at 116 days in March 2011, it rose to a peak of 135 days in December 2013 before slightly declining to 128 days by December 2014. This pattern indicates that inventory is being held for longer durations over time, suggesting potential changes in inventory management or sales velocity.

Average Receivable Collection Period

The average receivable collection period exhibits some variability but remains relatively stable overall. It fluctuates between 49 and 58 days, with occasional spikes such as 57 days in June 2012 and a high of 58 days in September 2014. There is a mild tendency toward slightly longer collection times in mid-2013 to mid-2014, followed by a decrease toward the end of 2014. This suggests some variation in credit management or customer payment behavior, but no strong directional trend.

Operating Cycle

The operating cycle, reflecting the total time to convert inventory and receivables into cash, generally increased from 165 days in March 2011 to a high of 192 days in December 2013. After this peak, there is a moderate decline to 175 days by December 2014. The overall upward movement followed by a reduction mirrors the trends seen in inventory processing and receivables collection, indicating periods of lengthening liquidity cycles before improvement in late 2014.

The payables turnover ratio exhibits a general downward trend throughout the periods observed, beginning at 3.24 in the first reported quarter and decreasing gradually to 2.93 by the last quarter. Initial quarters show a moderate increase from 3.24 to 3.94, indicating a temporary improvement in the frequency of payables settlement. Thereafter, the ratio steadily declined, suggesting a slowdown in the rate at which payables were turned over.

Conversely, the average payables payment period, expressed in days, shows an inverse relationship with the payables turnover ratio. It starts at 112 days and initially diminishes to a low of 93 days, reflecting quicker payments to creditors. Subsequently, the payment period lengthens considerably, reaching a peak of 144 days before slightly retreating to 125 days. This increase in the payment period corresponds with the decrease observed in the payables turnover ratio.

The shifts in these payables metrics indicate changes in cash management practices or supplier payment terms. The early part of the period reveals efforts toward faster payables settlement, while the latter periods suggest a strategy of extending payment timelines, possibly to conserve cash or due to renegotiated payment terms. Overall, the data highlights a transition from relatively efficient payables management toward longer payment durations over the course of the analyzed timeframe.

The analysis of the quarterly financial data reveals several noteworthy trends in key operational efficiency metrics over the observed periods.

Average Inventory Processing Period

This metric exhibits a generally increasing trend from the first available data in March 2011 through the end of 2014. The number of days rose from 116 to a peak of 135 days in June 2014 before declining slightly to 128 days by December 2014. This indicates a gradual lengthening in the time taken to process inventory, suggesting potential impacts on inventory turnover efficiency.

Average Receivable Collection Period

The receivable collection period shows some fluctuation but remains relatively stable around the mid-50 day range. It started at 49 days in March 2011, increased to the upper 50s (reaching 58 days in September 2014), and then decreased back to 47 days by December 2014. These variations reflect some changes in the efficiency of collecting receivables, with a slight improvement noted at the end of the period.

Average Payables Payment Period

There is a noticeable increase in the payables payment period across the timeframe. Starting from 112 days in March 2011, it decreased initially to 93 days by December 2011, but then increased substantially thereafter, reaching a high of 144 days in June 2014, before dropping slightly to 125 days by December 2014. This lengthening of the payment period implies a more extended duration before settling payables, possibly indicating improved payment terms or cash management strategies.

Cash Conversion Cycle

The cash conversion cycle (CCC) shows a rise from 53 days in March 2011 to a peak of 86 days in June 2012, followed by a gradual decline to 50 days by December 2014. The CCC reflects the overall efficiency in managing working capital, and the initial increase suggests a temporary decline in efficiency, which was later reversed as the cycle shortened notably towards the end of the period.

In summary, the data suggest a lengthening inventory processing period and payables payment period over the analyzed quarters, coupled with fluctuations in receivables collection. The cash conversion cycle initially worsened but improved substantially in the latter periods, indicating that despite some operational delays, overall working capital management efficiency increased towards the end of the timeframe.