Arista Networks Inc. (NYSE:ANET)

The analysis of the financial ratios over the reported periods reveals several notable trends in the company's operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio shows a declining trend after March 2021, falling from 1.74 to a low of around 1.11 by mid-2024, before slightly improving towards the end of the period. This indicates a slowing rate at which inventory is sold and replaced, suggesting potential issues with inventory management or demand fluctuations.

Receivables Turnover

The receivables turnover ratio fluctuates significantly, peaking around late 2021 and early 2023 but generally trending downward in the most recent periods. This pattern points to varying effectiveness in collecting receivables, with recent decreases indicating a slower collection pace.

Payables Turnover

Payables turnover exhibits considerable volatility, with sharp increases observed in certain quarters, notably near the end of 2023 and mid-2024. The elevated turnover during these periods signals a faster payment to suppliers, though the overall trend is inconsistent.

Working Capital Turnover

Working capital turnover increases from early 2021 through late 2022, reaching a peak slightly above 1.04, indicating improved utilization of working capital. However, this ratio declines again from early 2023 onwards, suggesting reduced efficiency in generating revenue from working capital.

Average Inventory Processing Period

The average inventory processing period lengthens steadily from around 210 days in early 2021 to a peak exceeding 328 days by late 2023, before decreasing somewhat in subsequent quarters. This elongation reflects growing days inventory is held, corresponding with the decreasing inventory turnover ratio.

Average Receivable Collection Period

The receivable collection period shows significant variability, increasing from approximately 51 days in late 2020 to peaks over 77 days in late 2022, followed by fluctuations around the 60-70 day mark. The longer collection periods in some intervals indicate delayed customer payments, impacting cash flow.

Operating Cycle

The operating cycle length extends from around 253 days in mid-2020 to above 380 days in late 2023, indicating a longer time frame between inventory acquisition and cash collection on sales. This trend corresponds with the increases in both inventory processing and receivable collection periods.

Average Payables Payment Period

The payables payment period fluctuates across the quarters, with values ranging widely between 36 days and 77 days. Recent quarters show a decreasing trend, particularly around mid-2024, implying quicker payment to suppliers during these periods.

Cash Conversion Cycle

The cash conversion cycle generally lengthens from approximately 197 days in mid-2020 to a peak of over 357 days in early 2024, before showing some improvement thereafter. This increase suggests a longer duration to convert investments in inventory and receivables back into cash, which may negatively impact liquidity.

Overall, the data indicate a deterioration in operational efficiency over the periods analyzed, especially reflected in slower inventory turnover, extended inventory holding and receivable collection periods, and a longer cash conversion cycle. Although working capital turnover improved temporarily, recent declines suggest challenges in managing working capital effectively. The variability in payables turnover and payment periods may reflect changing supplier payment strategies. These trends warrant careful attention to optimize asset management and cash flow.

Cost of Revenue

The cost of revenue demonstrates a consistent upward trend from March 31, 2020, through March 31, 2025. Starting at approximately $184.8 million, it gradually increases quarter over quarter, with notable accelerations in the periods ending June 30, 2022, to December 31, 2022, and continuing through subsequent quarters. By March 31, 2025, the cost of revenue reaches approximately $728.7 million, indicating a substantial rise over the five-year span.

Inventories

Inventories show a marked expansion over the same period, beginning at about $261.8 million in March 2020 and growing significantly to exceed $1.95 billion by March 2025. This growth is particularly pronounced from March 2022 onward, where inventory levels more than doubled. Some fluctuations occur around mid-2024, with a temporary decrease before rising again, suggesting active inventory management adjustments.

Inventory Turnover Ratio

The inventory turnover ratio, reported from September 2020 onwards, exhibits a generally decreasing trend in the early years, moving from 1.74 to as low as 1.12 by mid-2023. This indicates a slower rate at which inventories are converted into sales relative to the inventory size. However, from late 2023 forward, the ratio stabilizes and even shows a slight recovery, rising to approximately 1.36 by March 2025. This stabilization and improvement may suggest enhanced efficiency in inventory management or stronger sales relative to inventory levels.

Overall Insights

The data reveals continuous growth in both cost of revenue and inventory levels, reflecting expansion in sales activities or operational scale. The initial decline in inventory turnover ratio suggests that inventory accumulation outpaced sales growth during the earlier periods. The subsequent stabilization and modest increase in turnover ratio in the later quarters could indicate corrective actions taken to optimize inventory levels or improve sales velocity. The substantial increase in inventory alongside rising costs and eventual improvements in turnover ratio may demonstrate the company's efforts to balance growth with operational efficiency.

The financial data reveals several important trends over the observed periods.

Revenue

Revenue shows a consistent upward trajectory from March 31, 2020, to March 31, 2025. Starting at approximately 523 million USD, revenue increases steadily each quarter, reaching about 2 billion USD by the end of the period. This reflects strong growth, with notable acceleration evident in some periods, such as between June 2021 and December 2022. The growth appears sustained without significant declines or interruptions, implying successful business expansion or increased market demand.

Accounts Receivable, Net

Accounts receivable figures display more volatility compared to revenue but generally trend upward over the evaluated timeframe. Initial values fluctuate between approximately 300 million USD and 516 million USD during 2020 and 2021, followed by a substantial increase to over 900 million USD by the end of 2022. The trend continues with somewhat higher variation, reaching close to 1.4 billion USD by March 31, 2025. This growth in receivables accompanies the revenue increase; however, the irregular fluctuations and significant jumps suggest changes in credit terms, billing cycles, or collection effectiveness may have occurred during some quarters.

Receivables Turnover

The receivables turnover ratio exhibits some oscillation but remains within a moderate range, mostly between 4.75 and 7.22 times annually. Peaks are observed around September 2020 (7.22) and September 2023 (6.75), indicating periods where accounts receivable were collected relatively quickly in relation to sales. Conversely, troughs such as in March 2022 (4.75) and December 2024 (5.18) suggest slower collections or increased outstanding receivables relative to revenue. The general pattern suggests that despite revenue growth, the efficiency of receivables collection has experienced some variability but without a clear long-term trend toward improvement or deterioration.

In summary, the data depicts robust revenue growth accompanied by rising accounts receivable balances, while receivables turnover ratios fluctuate with no pronounced directional trend. This combination may indicate expanding sales volume with corresponding increases in receivables, alongside variations in credit management or collection efficiency that merit further operational review.

Cost of Revenue

The cost of revenue shows an overall increasing trend from March 31, 2020, through March 31, 2025. Starting at approximately 185 million US dollars in early 2020, it gradually rose with some periods of accelerated growth, notably between June 2022 and December 2022 where costs increased sharply from around 408 million to over 506 million US dollars. After peaking near 574 million in mid-2023, a slight decline is observed towards the end of 2023, followed by renewed growth through to early 2025, reaching nearly 729 million US dollars. The consistent upward movement reflects growing operational expenses or scaling activities over this period.

Accounts Payable

Accounts payable figures demonstrate significant fluctuations across the quarters. The balance rose substantially from approximately 85 million US dollars in Q1 2020 to over 202 million by Q4 2021, indicating increased short-term obligations. This was followed by variable levels between 2022 and 2025, with notable spikes such as the surge to above 435 million US dollars in December 2023, and again to around 389 million by March 2025. The irregular pattern suggests uneven payment cycles or changes in purchasing behavior, possibly tied to operational or supply chain factors.

Payables Turnover Ratio

The payables turnover ratio generally ranges between approximately 4.7 and 10.1 times annually, showing moderate variability. Higher turnover ratios occur sporadically, such as 8.16 in December 2021 and an elevated 10.09 in June 2024, reflecting faster payment to suppliers in these periods. Conversely, periods with lower ratios near 4.74 (September 2022) indicate slower payables turnover. Overall, the ratio fluctuates without a clear long-term trend, suggesting varying payment terms or cash management strategies throughout the quarters.

The financial data reveals distinct dynamics over the observed quarters. Working capital shows a consistent upward trajectory from March 2020 through March 2025, almost tripling over the period. This indicates growing resources available for day-to-day operations, with increases most notable from early 2022 onward, suggesting enhanced liquidity or asset management.

Revenue exhibits steady growth across all quarters. Starting at approximately $523 million in the first quarter of 2020, it more than triples to around $2 billion by the first quarter of 2025. Growth appears consistent with occasional acceleration periods, particularly between 2021 and 2023, reflecting expanding sales or service income.

The working capital turnover ratio, which measures how efficiently working capital is employed to generate revenue, is available from the third quarter of 2020 onward. It begins around 0.76, remaining relatively stable near this value through 2021. From early 2022, a notable increase occurs, peaking above 1.04 by the third quarter of 2022 and early 2023. This suggests improved efficiency in using working capital during this interval. However, post-2023, the ratio declines steadily back toward approximately 0.76 by early 2025, indicating a reduction in efficiency relative to the revenue generated by each unit of working capital.

In summary, while both working capital and revenue expanded significantly, the efficiency in deploying working capital as reflected by the turnover ratio fluctuated. Early gains in turnover efficiency mid-period were followed by a gradual decrease, implying changes in operational or capital management strategies over time.

Working Capital

Consistently increased from about $2.76 billion to approximately $9.15 billion, illustrating expanded operational liquidity.

Revenue

Grew steadily from $523 million to roughly $2 billion, indicating sustained business growth.

Working Capital Turnover

Started near 0.76, rose above 1.04 in 2022-2023, signalling improved efficiency, then declined toward 0.76 by 2025, suggesting reduced efficiency.

Inventory Turnover

The inventory turnover ratio showed a moderate decrease over the periods observed. Starting at 1.74 in March 2021, it increased slightly to a peak of 1.85 in June 2021 but then generally declined to a low of 1.11 in June 2023. Following this decline, the ratio exhibited some recovery, rising to 1.37 by September 2024 before stabilizing around 1.36 in December 2024 and March 2025. This trend indicates that the company experienced a reduction in the frequency of inventory being sold and replaced during most of the period, followed by a mild improvement in later quarters.

Average Inventory Processing Period

The average inventory processing period measured in days demonstrated an inverse pattern to the inventory turnover ratio, which is expected given their relationship. It began at 210 days in March 2021, decreased briefly to 197 days in June 2021, then increased steadily to reach a peak value of 328 days in December 2023. After this highest point, the period shortened gradually to 267 days by September 2024 and remained relatively stable through March 2025. This increasing trend over most periods suggests that the company took longer to process inventory, potentially reflecting slower sales or changes in inventory management. The later reduction may indicate efforts to improve inventory turnover efficiency.

Receivables Turnover Ratio

The receivables turnover ratio shows noticeable fluctuations over the reported periods. Starting from a value of 5.95 in March 2021, it increased steadily to reach a peak of 7.22 in September 2021, indicating an improvement in the efficiency of collecting receivables during that time. However, it then declined to 5.71 by March 2022. Following another minor fluctuation, the ratio rose again, peaking at 6.75 in September 2023 before lowering slightly by year-end 2023. Over the most recent four quarters, the receivables turnover ratio has fluctuated between 5.14 and 6.14, suggesting moderate variability in collection efficiency. The latest figure for March 2025 stands at 5.18, reflecting a slight reduction compared to previous quarters.

Average Receivable Collection Period (Days)

The average receivable collection period inversely mirrors the trends observed in the receivables turnover ratio, as expected. Data from March 2021 through March 2025 shows variations ranging roughly between 51 and 77 days. The shortest collection period was 51 days in September 2021, aligning with the peak receivables turnover ratio of that period and indicating faster cash inflows. Subsequently, the period extended to a peak of 77 days in March 2023, indicating slower collections. Post-March 2023, the days to collect receivables exhibit a moderate range, generally between mid-50s to low 70s. The latest data point, 70 days in March 2025, signals a lengthening of the collection period relative to previous quarters.

Overall Analysis

The analyzed periods highlight a cyclical pattern in both receivables turnover and average collection period, with inverted movements characteristic of these metrics. Periods of improved receivables turnover are associated with shorter collection periods, reflecting enhanced operational efficiency in managing accounts receivable. Conversely, increases in collection days coincide with declines in turnover ratios, suggesting challenges in the timely collection of receivables. The recent trend towards a longer collection period and reduced turnover ratio may warrant attention to credit and collection policies to optimize working capital management going forward.

Average Inventory Processing Period

The average inventory processing period shows a clear increasing trend from March 31, 2021, onwards. Starting at 210 days, it experienced a gradual rise, peaking at 328 days by December 31, 2024. A moderate decline followed, ending at 267 days by March 31, 2025. This pattern suggests that the company has been holding inventory for longer durations in recent years, which might indicate slower inventory turnover or increased stock levels.

Average Receivable Collection Period

The average receivable collection period exhibits notable volatility across the quarters analyzed. Initially decreasing from 61 days in March 31, 2021, to a low of 51 days in September 30, 2021, it then increased sharply to 75 days by June 30, 2022. Following this spike, the period fluctuated between mid-50s and low-70s days, ending at 70 days in March 31, 2025. This variability indicates changes in the company's credit collection efficiency, with some periods reflecting lengthier collection times, potentially impacting cash flow.

Operating Cycle

The operating cycle mirrors the trends observed in inventory processing and receivable periods, showing a general upward trajectory from March 31, 2021, onwards. The cycle extended from 271 days to a peak of 393 days by December 31, 2023. Following this peak, the operating cycle declined somewhat but remained elevated relative to earlier periods, ending at 338 days by March 31, 2025. This lengthening suggests increasing working capital requirements and potentially more capital tied up in operations.

Payables Turnover Ratio

The payables turnover ratio shows fluctuations over the observed periods. Starting from a value of 6.23 in March 2021, it increased gradually to peak at 7.39 by December 2021. Following this peak, a declining trend is visible in the first three quarters of 2022, dropping to 4.74 in September 2022. Thereafter, the ratio recovered and again reached a high point of 8.16 in December 2023. Subsequently, the ratio showed volatility, decreasing sharply to 5.13 in March 2024, then surging to 10.09 by June 2024, before stabilizing in the 6.59 to 8.14 range in late 2024 and early 2025. This pattern suggests variable efficiency in managing payables, with periods of both improved and diminished turnover speeds.

Average Payables Payment Period (Days)

The average payment period exhibits an inverse relationship to the payables turnover ratio as expected. It decreased from 59 days in March 2021 to a low of 49 days in December 2021, indicating quicker payments. Then, it extended significantly, peaking at 77 days in September 2022, reflecting slower payment behavior. Following this peak, the payment period shortened again to 45 days by December 2023, correlating with the increased turnover ratio at that time. After December 2023, the payment period varies considerably: rising to 71 days at March 2024, dropping sharply to 36 days by June 2024, before settling around the mid-40s to mid-50s range by early 2025. This variability illustrates an inconsistent payment policy or cash management approach throughout the periods under review.

Summary of Trends and Insights

Overall, there is a clear cyclical pattern in both payables turnover and payment period metrics, suggesting episodic shifts in how payables are managed. Periods of higher payables turnover correspond to shorter payment periods, indicating faster settlement of liabilities. Conversely, declines in turnover coincide with extended payment durations, possibly reflecting strategic cash conservation or operational challenges. The substantial volatility in the latter periods, especially notable with an abrupt jump to a payables turnover ratio of 10.09, may warrant closer review to understand the underlying drivers, which could include changes in supplier terms, payment policies, or fluctuations in payable volumes. These oscillations highlight the importance of continued monitoring to ensure optimal management of payables in alignment with the company’s financial objectives and liquidity conditions.

The analysis of the quarterly financial data reveals distinct trends in the company's operational efficiency metrics over the examined periods.

Average Inventory Processing Period

The average inventory processing period demonstrates a generally increasing trend from the earliest available figures, starting at 210 days in March 2021 and rising to a peak of 328 days in December 2024. This increase suggests a lengthening duration for inventory turnover, with minor fluctuations noted at certain points. After peaking, there is a slight decline towards 267-268 days in the first quarter of 2025, indicating a potential improvement or stabilization in inventory management.

Average Receivable Collection Period

The average receivable collection period exhibits variability over the periods, initially decreasing from 61 days in March 2021 to a low of 51 days in September 2021, implying enhanced efficiency in collecting receivables. However, subsequent quarters show fluctuations, with several increases reaching up to 77 days in December 2022, followed by declines and rises again, ultimately ending near 70 days in March 2025. These oscillations suggest inconsistent management of accounts receivable with some periods of delay.

Average Payables Payment Period

The average payables payment period experiences notable variability with values ranging between 36 days and 77 days. The earlier periods show moderate averages around 49 to 59 days, followed by increases peaking at 77 days in September 2022. A sharp decrease to 36 days is observed in June 2024, indicating faster payments during that quarter. The period ends around 53 days in March 2025, reflecting fluctuating payment practices to suppliers.

Cash Conversion Cycle

The cash conversion cycle shows a pronounced upward trend from 212 days in March 2021 to a high of 357 days in June 2024. The increasing cycle duration suggests a growing length of time between cash outflows and inflows, potentially indicating reduced operational liquidity efficiency. After the peak, there is a reduction to 271-285 days by the first quarter of 2025, pointing to an improvement in cash flow management.

Overall, the data portrays increasing inventory holding periods and extended cash conversion cycles, which may pose operational and liquidity challenges. The variability in receivables and payables periods further highlights inconsistent working capital management that warrants attention for optimizing cash flow and operational efficiency.