Allergan PLC (NYSE:AGN)

Inventory Turnover

The inventory turnover ratio has exhibited a general declining trend from 4.76 in 2015 to 2.2 in 2019, indicating a slowdown in the frequency at which inventory is sold and replaced over the period.

Receivables Turnover

The receivables turnover ratio has gradually decreased from 6.28 in 2015 to 5.04 in 2019, reflecting a slower collection of receivables over time, which could imply lengthening credit terms or delays in customer payments.

Payables Turnover

There is a marked decline in payables turnover from 13.02 in 2015 to around 6.39 in 2019. This suggests the company is taking longer to settle its payables, thus potentially improving its cash retention by extending payment periods.

Working Capital Turnover

The working capital turnover ratio shows considerable volatility, falling sharply from 52.49 in 2015 to 1.46 in 2016, followed by a rise to 287.3 in 2019. This extreme fluctuation indicates significant changes in working capital management or in sales relative to working capital.

Average Inventory Processing Period

The average inventory processing days increased from 77 days in 2015 to 166 days in 2019, indicating that inventory remains in stock for longer durations, consistent with the declining inventory turnover ratio.

Average Receivable Collection Period

The average collection period lengthened gradually from 58 days in 2015 to 72 days in 2019, corroborating the trend of slower receivables turnover.

Operating Cycle

The operating cycle has lengthened from 135 days in 2015 to 238 days in 2019, reflecting the combined effects of increased inventory holding periods and longer receivables collection times, signaling a longer time to convert inputs into cash.

Average Payables Payment Period

The average payables payment period extended from 28 days in 2015 to around 57 days in 2019, indicating that the company is taking more time to pay its suppliers.

Cash Conversion Cycle

The cash conversion cycle increased from 107 days in 2015 to 181 days in 2019, showing that cash is tied up for longer periods during the operating cycle after accounting for payables payments. Despite some fluctuations, the overall trend points toward a longer cash conversion timeframe.

Cost of Sales

The cost of sales, excluding amortization and impairment of acquired intangibles including product rights, experienced a significant decrease from 4,810,400 thousand US dollars in 2015 to 1,860,800 thousand US dollars in 2016. Following this sharp decline, the cost showed a gradual upward trend over the subsequent years, reaching 2,493,100 thousand US dollars by the end of 2019. This pattern indicates a substantial reduction in direct costs incurred between 2015 and 2016, followed by a steady recovery in costs over the next three years.

Inventories

Inventories decreased from 1,009,700 thousand US dollars in 2015 to 718,000 thousand US dollars in 2016, mirroring the sharp contraction observed in cost of sales during the same period. Thereafter, inventory levels increased over the following years, peaking at 1,133,100 thousand US dollars by 2019. The fluctuations suggest adjustments in inventory management or production relative to sales activity, with an initial inventory reduction succeeded by replenishment or accumulation towards the later periods.

Inventory Turnover

The inventory turnover ratio declined notably from 4.76 in 2015 to 2.59 in 2016, then exhibited a mostly stable pattern with minor decreases and slight recovery, ending at 2.2 in 2019. This decline from 2015 indicates slower movement of inventory through the system relative to cost of goods sold, implying potential changes in sales velocity, inventory management efficiency, or market demand. The stabilization in subsequent years suggests the company maintained a consistent rate of inventory usage after the initial drop.

Net Revenues

Net revenues exhibited fluctuations over the five-year period. The figure initially decreased from 15,071 million USD in 2015 to 14,570.6 million USD in 2016. Subsequently, there was a recovery and growth trend, with revenues rising to 15,940.7 million USD in 2017. A slight decline followed in 2018 to 15,787.4 million USD, after which revenues increased again to 16,088.9 million USD in 2019, marking the highest point within the period.

Accounts Receivable, Net

Accounts receivable showed a consistent upward trajectory over the five years. Starting from 2,401.6 million USD in 2015, the balance progressively increased each year. By 2019, the figure reached 3,192.3 million USD, reflecting a significant growth in outstanding receivables.

Receivables Turnover Ratio

The receivables turnover ratio declined steadily from 6.28 times in 2015 to 5.04 times in 2019. This trend suggests a lengthening in the collection period of receivables, indicating that the company was taking more time on average to collect outstanding payments from customers.

Overall Analysis

While net revenues showed some variability with an overall modest upward movement, the accounts receivable balance increased substantially, and the receivables turnover ratio decreased across the period. This combination points to a potential weakening in the efficiency of receivables collection, which may impact cash flow if not managed properly. The company generated higher sales toward the end of the period, but the growing receivables and declining turnover ratio warrant close monitoring to ensure that revenue growth translates into timely cash collections.

Cost of Sales

The cost of sales, excluding amortization and impairment of acquired intangibles including product rights, shows a significant decline from 4,810,400 thousand US$ in 2015 to 1,860,800 thousand US$ in 2016. Following this sharp drop, the cost gradually increases over the subsequent years, reaching 2,493,100 thousand US$ by the end of 2019. This pattern suggests a major operational or structural change around 2016, after which costs stabilized and grew moderately.

Accounts Payable

Accounts payable decreased from 369,400 thousand US$ in 2015 to 224,900 thousand US$ in 2016, mirroring the reduction observed in costs. From 2016 onwards, accounts payable consistently increased each year, ending at 390,400 thousand US$ in 2019. This increase indicates a gradual rise in obligations to suppliers or vendors, which aligns with the growing cost of sales post-2016.

Payables Turnover Ratio

The payables turnover ratio declined steadily over the period, dropping from 13.02 in 2015 to a low of 6.26 in 2018, with a slight increase to 6.39 in 2019. This ratio decline suggests the company took longer to pay off its suppliers over time, possibly reflecting changes in payment policies or cash flow management. The slight uptick in 2019 may indicate a minor reversal of this trend.

Working Capital

Working capital exhibited significant fluctuations over the observed periods. Starting at 287,100 thousand US dollars at the end of 2015, it peaked sharply to 9,983,200 thousand US dollars in 2016, followed by a substantial decline to 1,528,600 thousand in 2017. The downward trend continued in 2018 with working capital reducing to 747,500 thousand, and it further decreased drastically to 56,000 thousand by the end of 2019. This pattern indicates considerable variability and a notable shrinking of working capital through the latter years.

Net Revenues

Net revenues remained relatively stable throughout the five-year span, with minor fluctuations. Beginning at 15,071,000 thousand US dollars in 2015, revenues slightly decreased to 14,570,600 thousand in 2016. They rebounded in 2017 to 15,940,700 thousand and remained relatively constant in 2018 at 15,787,400 thousand. By the end of 2019, net revenues showed a moderate increase to 16,088,900 thousand, reflecting overall stability with a mild upward trend towards the end of the period.

Working Capital Turnover

The working capital turnover ratio demonstrated pronounced volatility. Starting at a high level of 52.49 in 2015, the ratio dropped significantly to 1.46 in 2016, correlating with the spike in working capital during that year. It then progressively increased to 10.43 in 2017 and 21.12 in 2018. By 2019, the turnover ratio surged dramatically to 287.3, indicating an extreme increase in efficiency or a very low working capital base relative to net revenues. This extreme fluctuation reflects the previously noted changes in working capital and signals potential operational or financial structural changes impacting short-term asset and liability management.

Inventory Turnover

The inventory turnover ratio demonstrates a declining trend over the analyzed period. It starts at 4.76 in 2015 and decreases sharply to 2.59 in 2016, followed by a slight decrease to 2.4 in 2017. The ratio then remains relatively stable in 2018 at 2.59 before declining further to 2.2 in 2019. This trend indicates a weakening efficiency in managing and selling inventory over these years.

Average Inventory Processing Period

The average inventory processing period, expressed in number of days, shows an increasing trend in the observed timeframe. It increases significantly from 77 days in 2015 to 141 days in 2016, continuing to rise to 152 days in 2017. Although it remains stable at 141 days in 2018, it extends further to 166 days in 2019. This increase in processing days reflects a longer duration for inventory turnover, consistent with the declining inventory turnover ratio, suggesting potential challenges in inventory management and movement.

Receivables Turnover

The receivables turnover ratio displayed a consistent downward trend over the observed five-year period, decreasing from 6.28 in 2015 to 5.04 by the end of 2019. This decline suggests a reduction in the efficiency with which the company is collecting its receivables, indicating that accounts receivable are being converted into cash more slowly each year.

Average Receivable Collection Period

The average receivable collection period increased from 58 days in 2015 to 72 days in 2019. This upward trend further supports the observation from the receivables turnover ratio, highlighting that the company is taking longer to collect payments from its customers. The average collection period rose steadily from 58 days to 66 days between 2015 and 2018 and then increased further to 72 days in 2019.

Overall Analysis

The combined movement of these two metrics indicates a declining efficiency in the management of accounts receivable over the period. Extended collection periods may negatively impact the company’s liquidity position and suggest a potential deterioration in credit control or customer payment behavior.

The analysis of the annual financial data reveals several noteworthy trends concerning the company's operational efficiency over the five-year period from the end of 2015 to the end of 2019.

Average Inventory Processing Period

The average inventory processing period exhibited a significant increase, rising from 77 days in 2015 to 166 days in 2019. This represents more than a doubling in the number of days inventory remains in processing. The period peaked at 152 days in 2017, then slightly declined to 141 days in 2018 before increasing again. The general upward trend indicates a lengthening timeframe in managing inventory, which may reflect changes in inventory management strategy, supply chain issues, or product demand fluctuations.

Average Receivable Collection Period

This period showed a steady increase over the five years, moving from 58 days at the end of 2015 to 72 days in 2019. The gradual lengthening suggests that it takes longer for the company to collect payments from customers, which could affect cash flow and liquidity. The increase is consistent but less pronounced than that observed in the inventory period.

Operating Cycle

The operating cycle, calculated as the sum of the inventory processing period and the receivable collection period, expanded markedly from 135 days in 2015 to 238 days in 2019. This indicates that the overall time taken from purchasing inventory to collecting cash from sales has increased substantially. The elongation of the operating cycle could signal operational inefficiencies or changes in working capital policies, potentially impacting the company’s cash conversion and financing needs.

In summary, the data suggest a considerable extension in the durations associated with inventory processing and receivable collection, contributing to a longer operating cycle. This trend points to the need for attention to inventory management and accounts receivable strategies to improve operational efficiency and cash flow management.

Payables Turnover

The payables turnover ratio demonstrates a clear declining trend over the period from 2015 to 2019. Starting at 13.02 in 2015, the ratio decreases sharply to 8.27 in 2016, followed by a continued decline to 6.68 in 2017, 6.26 in 2018, and then a slight uptick to 6.39 in 2019. This decreasing ratio indicates that the company is taking longer to pay its suppliers over time.

Average Payables Payment Period

The average payables payment period shows an inverse trend relative to the payables turnover, increasing significantly from 28 days in 2015 to 44 days in 2016. It continues to lengthen in the subsequent years, reaching 55 days in 2017, 58 days in 2018, and slightly decreasing to 57 days in 2019. This increase suggests that the company is extending the duration it takes to settle its payables, which might be a strategic decision to improve cash flow management or could indicate liquidity constraints.

Overall Analysis

The data collectively points to a tendency of slower payments to suppliers over the five-year span. The notable drop in payables turnover ratio alongside the rise in the average payment period implies a shift toward longer credit terms or delays in payment practices. The marginal reversal in 2019 with a slight increase in turnover and a small decrease in payment days may signal an adjustment in payment policies or operational changes aiming for quicker settlements, though the values remain substantially different from the starting point in 2015.

Average Inventory Processing Period

The average inventory processing period showed an increasing trend over the observed years. Starting at 77 days in 2015, it rose significantly to 141 days in 2016, followed by a gradual increase up to 166 days by 2019. This suggests a lengthening time to convert inventory into sales or use.

Average Receivable Collection Period

The average receivable collection period demonstrated a steady upward trajectory. It increased from 58 days in 2015 to 72 days in 2019. This indicates that, over time, the company took longer to collect payments from customers, which may have implications for cash flow management.

Average Payables Payment Period

The average payables payment period also experienced growth during the period under review. Starting from 28 days in 2015, it rose sharply to 44 days in 2016, then continued to increase, reaching 57 days in 2019. This indicates that the company extended the time taken to settle its obligations to suppliers.

Cash Conversion Cycle

The cash conversion cycle, which reflects the net time span between cash outflow and inflow, increased notably. Beginning at 107 days in 2015, it peaked at 163 days in 2017, slightly improved to 149 days in 2018, and then extended again to 181 days in 2019. The increase overall indicates a lengthening period in which cash is tied up in the operational process.

Summary Insight

Overall, the data reveal a lengthening of the company's operational and cash flow cycles over the five-year period. The longer inventory processing and receivable collection periods suggest slower turnover and collection processes. Although the payables payment period also increased, providing some relief in terms of cash outflows, it does not fully offset the extended cash inflow cycles. Consequently, the cash conversion cycle's upward trend highlights a growing demand on working capital, which may affect liquidity management strategies.