Carrier Global Corp. (NYSE:CARR)

The analysis of operating activity ratios indicates a period of fluctuation in operational efficiency, characterized by a notable deceleration in asset turnover and an extension of the cash cycle by the end of 2022.

Inventory and Receivables Management

Inventory turnover experienced a consistent decline, falling from 7.58 in 2020 to 5.67 in 2022. This trend is mirrored in the average inventory processing period, which expanded from 48 days to 64 days, suggesting a slowdown in the movement of goods or an increase in stock levels relative to sales.

Receivables turnover showed an initial improvement in 2021, peaking at 8.58, before declining to 7.21 in 2022. Correspondingly, the average receivable collection period improved from 58 days in 2020 to 43 days in 2021, but subsequently lengthened to 51 days by the end of 2022.

Payables and Working Capital Efficiency

Payables turnover decreased from 6.38 in 2020 to 5.28 in 2022, reflecting an extension of payment terms. This is evidenced by the average payables payment period increasing from 57 days in 2020 to 69 days in 2022.

Working capital turnover exhibited volatility, decreasing to 4.31 in 2021 before recovering to 5.31 in 2022, indicating varying efficiency in utilizing net current assets to generate revenue over the analyzed period.

Operating and Cash Conversion Cycles

The operating cycle followed a U-shaped trend, decreasing from 106 days in 2020 to 92 days in 2021, before rising to 115 days in 2022. This extension is primarily attributed to the slower inventory turnover and longer collection periods observed in the final year.

The cash conversion cycle saw a significant reduction to 34 days in 2021, representing the period of highest liquidity efficiency. However, this metric regressed to 46 days in 2022, as the increases in inventory and receivable days outweighed the liquidity benefits gained from the extended payables payment period.

Between 2020 and 2022, a divergence emerged between the growth of costs of products sold and the accumulation of inventory, resulting in a contraction of inventory efficiency.

Cost of Products and Services Sold

A consistent upward trend is observed, with values rising from US$ 12,347 million in 2020 to US$ 14,957 million in 2022. The most significant growth occurred between 2020 and 2021, followed by a more moderated increase in 2022.

Inventories, Net

Inventory levels experienced substantial and accelerating growth over the analyzed period, increasing from US$ 1,629 million in 2020 to US$ 2,640 million in 2022. The scale of inventory accumulation intensified in 2022, where the largest year-over-year increase was recorded.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates a downward trajectory, falling from 7.58 in 2020 to 5.67 in 2022. While the decline was relatively stable between 2020 and 2021, a sharp decrease occurred in 2022. This pattern indicates that the rate of inventory buildup has significantly outpaced the growth in the cost of products and services sold, leading to a slower cycle of inventory conversion into sales.

Analysis of receivables turnover between 2020 and 2022 reveals a period of volatility in collection efficiency, characterized by a sharp improvement in the first year followed by a partial reversal in the second.

Revenue and Receivable Correlation (2020-2021)

A significant increase in efficiency is observed between 2020 and 2021. Net sales rose from 17,456 million to 20,613 million, while net accounts receivable simultaneously decreased from 2,781 million to 2,403 million. This combination resulted in the receivables turnover ratio increasing from 6.28 to 8.58, indicating a more rapid conversion of credit sales into cash.

Operational Shift (2021-2022)

A decline in turnover performance occurred in 2022. During this period, net sales remained relatively stagnant with a slight decrease to 20,421 million, while net accounts receivable increased to 2,833 million. Consequently, the turnover ratio fell to 7.21, reflecting a slower collection cycle relative to the peak efficiency seen in 2021.

Comparative Three-Year Trend

Despite the downward movement in 2022, the turnover ratio of 7.21 remains higher than the 6.28 recorded in 2020. This suggests that while collection velocity decreased in the final year of the period, the overall operational capacity to manage receivables remains stronger than at the start of the analysis period.

The analysis of short-term operating activity reveals a progressive deceleration in the payables turnover ratio over the three-year period ending December 31, 2022. While the cost of products and services sold increased steadily, the growth in accounts payable occurred at a faster rate, resulting in a reduction in the frequency with which obligations to suppliers are settled.

Payables Turnover Ratio Trend

A downward trajectory is observed in the turnover ratio, which decreased from 6.38 in 2020 to 6.27 in 2021, and further declined to 5.28 by 2022. This consistent decline indicates a lengthening of the average payment period to vendors.

Accounts Payable Expansion

Accounts payable experienced significant growth, rising from 1,936 million USD in 2020 to 2,833 million USD in 2022. The increase in these liabilities outpaced the growth in operational costs, contributing directly to the lower turnover ratio.

Cost of Products and Services Sold

The cost of products and services sold rose from 12,347 million USD in 2020 to 14,957 million USD in 2022. Although operational expenditures increased, the company extended its payment cycles, suggesting a strategic shift toward utilizing supplier credit to manage working capital more aggressively.

An analysis of short-term operating activity reveals fluctuations in working capital efficiency between 2020 and 2022. While net sales expanded significantly between 2020 and 2021, a disproportionate increase in working capital led to a temporary decline in turnover efficiency. This trend reversed in 2022 as the working capital base was reduced while revenue levels remained relatively stable.

Working Capital Trends

Working capital increased by approximately 40% from 2020 to 2021, rising from US$ 3,414 million to US$ 4,780 million. By the end of 2022, this figure contracted to US$ 3,847 million, indicating a strategic reduction in the net current assets required to support operations.

Net Sales Performance

Revenue demonstrated growth from US$ 17,456 million in 2020 to a peak of US$ 20,613 million in 2021. For the 2022 fiscal year, net sales remained nearly flat at US$ 20,421 million, showing a stabilization of top-line performance.

Working Capital Turnover Efficiency

The turnover ratio experienced a decline from 5.11 in 2020 to 4.31 in 2021, suggesting that the increase in working capital outpaced sales growth during that period. However, the ratio improved to 5.31 in 2022, the highest level in the three-year period, reflecting a more efficient deployment of working capital to generate sales.

An analysis of the inventory activity ratios from 2020 to 2022 reveals a progressive decline in inventory management efficiency. There is a clear inverse correlation between the inventory turnover ratio and the average inventory processing period, with a significant acceleration in this trend during the 2022 fiscal year.

Inventory Turnover

A consistent downward trend is observed, with the ratio decreasing from 7.58 in 2020 to 7.43 in 2021, and further dropping to 5.67 by the end of 2022. This contraction indicates a reduction in the frequency with which inventory is sold and replaced over the reporting periods, suggesting a slowdown in sales velocity or an increase in unsold stock levels.

Average Inventory Processing Period

The duration required to move inventory through the operating cycle has increased. While the period remained relatively stable between 2020 and 2021, moving from 48 to 49 days, there was a substantial increase to 64 days in 2022. This represents a 30.6% increase in the holding period over the final year analyzed, indicating that capital is tied up in inventory for a longer duration.

The convergence of these two metrics suggests a deterioration in short-term operating efficiency. The sharp increase in the processing period during 2022, coupled with the lowest turnover ratio of the period, may point toward supply chain disruptions, a strategic shift toward higher safety stock levels, or a decrease in demand for finished goods.

The analysis of operating activity ratios reveals fluctuations in the efficiency of receivables management between 2020 and 2022. An initial increase in collection efficiency was observed in 2021, followed by a moderate decline in 2022, although performance remained superior to 2020 levels.

Receivables Turnover

The turnover ratio experienced a significant increase from 6.28 in 2020 to 8.58 in 2021, indicating a more rapid conversion of accounts receivable into cash. This trend reversed in 2022, with the ratio declining to 7.21, which suggests a decrease in the velocity of payment collections relative to credit sales.

Average Receivable Collection Period

The collection period showed a notable reduction from 58 days in 2020 to 43 days in 2021, reflecting improved credit management and faster cash inflows. In 2022, the period extended to 51 days, marking a deterioration in collection speed compared to the prior year, though the result remains more favorable than the 58-day period recorded in 2020.

The operating cycle exhibits a non-linear trend over the three-year period, characterized by an initial improvement in operational efficiency followed by a significant expansion in the total time required to convert inventory and receivables into cash.

Average Inventory Processing Period

An upward trend is observed, with the period increasing from 48 days in 2020 to 64 days in 2022. While the change between 2020 and 2021 was marginal, a significant increase of 15 days occurred in 2022, suggesting a slowdown in inventory turnover or a buildup of stock.

Average Receivable Collection Period

The collection period experienced a notable reduction from 58 days in 2020 to 43 days in 2021, indicating enhanced efficiency in credit collection. This trend reversed slightly in 2022, with the period increasing to 51 days, although it remained below 2020 levels.

Operating Cycle

The overall operating cycle contracted from 106 days in 2020 to 92 days in 2021, primarily driven by the acceleration of receivable collections. However, the cycle expanded sharply to 115 days by the end of 2022. This net increase is predominantly attributable to the deterioration in inventory processing speed, which offset the gains made in collection efficiency.

Analysis of the short-term operating activity reveals a consistent extension in the time required to settle obligations with suppliers over the three-year period ending December 31, 2022.

Payables Turnover

A downward trend is observed in the payables turnover ratio, which decreased from 6.38 in 2020 to 6.27 in 2021, and further declined to 5.28 by the end of 2022. This reduction signifies a lower frequency of settling accounts payable over the course of the fiscal year.

Average Payables Payment Period

The average duration for settling obligations increased marginally from 57 days in 2020 to 58 days in 2021, followed by a significant increase to 69 days in 2022. The most pronounced change occurred between 2021 and 2022, where the payment period expanded by 11 days.

The inverse correlation between the declining turnover ratio and the expanding payment period indicates a lengthening of the cash conversion cycle relative to suppliers. The substantial increase in the payment period during the final year suggests a shift in working capital management, potentially aimed at preserving liquidity or reflecting revised credit terms negotiated with vendors.

The cash conversion cycle exhibited significant volatility between 2020 and 2022, reflecting shifting efficiencies in working capital management. After a notable improvement in 2021, where the cycle shortened to 34 days, the duration expanded again to 46 days by the end of 2022, indicating a partial reversal of the efficiency gains achieved in the prior year.

Average Inventory Processing Period

A consistent upward trend is observed in the time required to process inventory. The period remained relatively stable between 2020 and 2021 at 48 and 49 days, respectively, before increasing sharply to 64 days in 2022. This suggests a slowing of inventory turnover or a strategic increase in stock levels during the final year of the period.

Average Receivable Collection Period

Receivable collections showed a fluctuating pattern. A significant improvement occurred in 2021, with the collection period dropping from 58 days to 43 days. Although this metric increased to 51 days in 2022, it remained lower than the 2020 baseline, suggesting a general improvement in credit collection efficiency compared to the start of the analyzed period.

Average Payables Payment Period

The period for settling obligations to suppliers increased steadily over the three years, rising from 57 days in 2020 to 69 days in 2022. This trend indicates a strategy of extending payment terms, which serves as a source of spontaneous financing and helps offset the cash pressure created by longer inventory holding periods.

Cash Conversion Cycle Dynamics

The overall cash conversion cycle was driven primarily by the interplay between inventory buildup and payables extension. The efficiency peak in 2021 was largely a result of accelerated receivable collections. However, the 2022 increase in the cycle to 46 days was driven by the surge in inventory processing time, which was only partially mitigated by the extension of the payables payment period.