Eaton Corp. plc (NYSE:ETN)

Inventory Turnover

The inventory turnover ratio demonstrates a declining trend over the periods analyzed, starting at 5.12 and gradually decreasing to around 3.5 by the end. This decline suggests that the company is taking longer to sell its inventory, indicating potential inventory build-up or slower sales velocity in recent periods.

Receivables Turnover

The receivables turnover ratio shows a slight overall decreasing trend from 5.79 initially to around 4.7 - 5.0 in the later periods. This indicates a modest lengthening in the time customers take to pay their invoices, potentially impacting liquidity.

Payables Turnover

The payables turnover ratio has shown a gradual decrease from 5.66 to approximately 4.2 - 4.3, indicating that the company is taking longer to pay its suppliers. This may reflect changes in payment policies or cash management strategies to optimize cash flow.

Working Capital Turnover

The working capital turnover ratio presents significant volatility. Early values were moderately low but spiked drastically in certain quarters (notably over 65 and above 20), suggesting fluctuating efficiency in the use of working capital. Nevertheless, in the most recent periods, the ratio has settled to levels around 5 to 11, indicating stabilization but still showing variability in working capital utilization.

Average Inventory Processing Period

There is a steady increase in the average inventory processing period from about 71 days to more than 100 days. This elongation suggests slower inventory movement through the supply chain, aligning with the declining inventory turnover ratio.

Average Receivable Collection Period

The average collection period has generally increased, moving from approximately 63 days to around 76 days. This extended collection period corresponds with the decline in receivables turnover, signaling customers are taking longer to settle their debts.

Operating Cycle

The operating cycle lengthens notably from about 134 days to near 180 days, reflecting the combined impacts of slower inventory turnover and longer receivable collection. This longer operating cycle suggests increased capital is tied up in operations for more extended periods.

Average Payables Payment Period

The average payables payment period also rises from 65 days to around 85-87 days, consistent with the reduced payables turnover. This indicates the company is effectively extending its payment terms or delaying payments to suppliers, potentially to manage cash flow.

Cash Conversion Cycle

The cash conversion cycle demonstrates an increasing trend, moving from about 69 days up to approximately 90-96 days towards the end of the periods reported. This indicates that the net time between cash outflow and inflow is lengthening, implying increased working capital requirements and potential cash flow constraints.

Cost of Products Sold

The cost of products sold exhibits a generally increasing trend over the observed periods. Starting at 3,184 million US dollars in the first quarter of 2021, the cost rises with some fluctuations, reaching a peak of 4,431 million US dollars in the second quarter of 2025. Notable increments occur between the second quarter of 2024 and the second quarter of 2025, indicating increased production costs or volume.

Inventory

Inventory levels show a consistent upward trajectory across the quarters. Beginning at 2,399 million US dollars in March 2021, the inventory steadily grows, reaching approximately 4,613 million US dollars by the third quarter of 2025. This pattern suggests ongoing accumulation of stock, possibly reflecting increased production or a strategic buildup of inventory.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates a gradual decline through the periods analyzed. From a ratio of 5.12 in the first quarter of 2021, it decreases to around 3.57 by the third quarter of 2025. This decline suggests that inventory is being sold or used at a slower rate, indicating either slowing sales, increasing inventory holding periods, or both. The decrease in turnover corresponds with the rising inventory levels, which may imply changes in demand conditions or inventory management strategy over time.

Overall Analysis

The data reveals that while both cost of products sold and inventory levels have steadily increased, the inventory turnover ratio has declined. This combination suggests that although production and stockholding have grown, sales or consumption of inventory have not kept pace proportionally. The company may be experiencing slower movement of inventory, which could impact working capital efficiency. Monitoring these trends going forward would be important to manage inventory risks and optimize cost structures effectively.

Net Sales

The net sales figures exhibit a general upward trend over the observed periods, increasing from $4,692 million in March 2021 to a peak of $7,028 million in June 2025, followed by a slight decline to $6,988 million in September 2025. There are intermittent fluctuations, with occasional periods of slower growth or minor declines, such as between March 2024 and December 2024 where the sales plateaued or slightly decreased. Overall, the data indicates steady revenue growth with some variability, reflective of seasonal or market-driven factors.

Accounts Receivable, Net

Accounts receivable demonstrated a similar increasing trajectory, rising from $3,065 million in March 2021 to $5,556 million by September 2025. There is consistent growth in receivables across each quarter, albeit with occasional minor decreases, such as between September 2024 and December 2024. The consistent upward movement aligns with the expanding sales volume, potentially highlighting extended credit terms or increasing credit sales over time.

Receivables Turnover Ratio

The receivables turnover ratio generally declines throughout the period, reducing from 5.79 in March 2021 to around 4.79 by September 2025, with some fluctuations. This downward trend suggests a lengthening in the average collection period, indicating receivables are being collected more slowly as time progresses. Although the ratio oscillates somewhat, the gradual decrease may reflect changes in credit policy, customer payment behavior, or market conditions affecting cash flow efficiency.

Summary of Trends

The analysis reveals a consistent increase in both net sales and accounts receivable, indicative of expanding business activity. However, the decrease in receivables turnover ratio points to potential challenges in cash collection processes, which could impact working capital management. The company may want to investigate the factors driving slower collections despite sales growth to optimize liquidity and minimize credit risk.

The analysis of the financial data reveals several noteworthy trends related to cost of products sold, accounts payable, and the payables turnover ratio over the quarters reported.

Cost of Products Sold

The cost of products sold demonstrates a general upward trend across the observed periods. Starting around 3,184 million US dollars, it experiences fluctuations but maintains an overall increase, reaching approximately 4,313 million US dollars by the last quarter. This increase reflects rising production or procurement costs over time, with some minor quarters of stabilization or slight decline, such as the marginal dip observed during late 2022 and early 2023.

Accounts Payable

Accounts payable also shows a consistent increase in monetary value, starting at 2,172 million US dollars and rising steadily to about 3,826 million US dollars by the end of the period. The growth in accounts payable aligns with the rise in cost of products sold, indicating that the company is maintaining or possibly extending its credit terms with suppliers in line with increased purchasing activity or inventory acquisition.

Payables Turnover Ratio

The payables turnover ratio exhibits a gradual decline from an initial value of 5.66 down to approximately 4.31 at the end of the timeline. This ratio typically measures how quickly a company pays off its suppliers; the declining trend suggests slower payments to vendors or longer credit terms being negotiated or granted. The ratio's decline is consistent and steady, reflecting a potential strategic shift in cash flow management or supplier relationships.

In summary, the company's cost of products sold and accounts payable both increase significantly over time, while the payables turnover ratio decreases steadily. This pattern indicates growing procurement activity coupled with a lengthening of payment periods to suppliers. These changes may impact the company's liquidity and supplier dynamics, highlighting areas for further scrutiny in cash management and operational efficiency strategies.

Working Capital Trends

Working capital exhibited notable volatility over the periods observed. Initially, it decreased sharply from 3324 million to -287 million between March 2021 and June 2022, suggesting tight liquidity or increased current liabilities relative to current assets. Following this trough, a steady recovery occurred from June 2022 onward, with working capital increasing to a peak of 4532 million by June 2024. Thereafter, a gradual decline followed, with values falling to 2303 million by June 2025, before a modest rebound to 2657 million in the latest quarter.

Net Sales Patterns

Net sales showed an upward trajectory throughout the entire period, reflecting consistent growth in revenue. Starting from 4692 million in March 2021, net sales increased steadily, reaching 7028 million by September 2025. This demonstrates a positive sales momentum, with periodic increases each quarter and no significant declines, indicating strong business performance and market demand.

Working Capital Turnover Analysis

Working capital turnover ratios were initially high and erratic, starting at 5.34 in March 2021 and jumping substantially to a peak of 65.65 by December 2021. This spike corresponds with the sharp reduction in working capital and stable sales, indicating efficient use of working capital during low liquidity phases. Data for early 2022 is missing, but from September 2022 onwards, turnover ratios stabilized within a moderate range of approximately 5.3 to 11.3. The ratio declined gradually after December 2022, reaching a low of 5.33 in June 2024, before ascending again to 11.29 in September 2025. These fluctuations suggest changes in operational efficiency relative to working capital investment and sales generation over time.

Overall Insights

The data reflect an initial period of strained liquidity followed by recovery and growth in financial health. The steady increase in net sales throughout indicates robust revenue growth. The working capital movements and turnover ratios imply varying efficiency and capital management strategies, with particular stress in early 2021 to mid-2022 followed by improved liquidity and consistent asset utilization. The latest quarters signal a potential return to tighter working capital management accompanied by strong sales growth.

Inventory Turnover

The inventory turnover ratio demonstrates a gradual decline over the analyzed periods, indicating a slower rate of inventory being sold or replaced. Starting from a ratio of 5.12 in the first quarter of 2021, it trends downward to reach approximately 3.57 by the third quarter of 2025. This consistent reduction suggests a slowdown in the company's sales efficiency related to inventory management.

Notably, the decline tends to be smooth with some periods exhibiting minor fluctuations but the overall trajectory is clear, reflecting a continuous easing in inventory movement.

Average Inventory Processing Period

The average inventory processing period exhibits an upward trend, corresponding inversely with the falling inventory turnover rate. From 71 days initially, the number of days required to process inventory increases steadily, reaching a peak of around 104 days in the third quarter of 2025.

This elongation in inventory holding time points to slower turnover and potentially increased carrying costs or inefficiencies within inventory management. The trend indicates that inventory remains on hand for a longer duration before being sold or utilized.

Overall Insight

The data reveals a consistent pattern where inventory turnover is declining while the average processing period is increasing. This correlation signals a decrease in operational efficiency regarding inventory management over the observed timeframe. Continued monitoring and strategic adjustments may be necessary to improve inventory turnover and reduce the processing period to maintain optimal working capital utilization.

The analysis of the quarterly financial data reveals distinct trends in the company's receivables management over the observed periods.

Receivables Turnover

The receivables turnover ratio shows a gradual decline from 5.79 in the first quarter of 2021 to 4.79 in the third quarter of 2025. This overall downward trend indicates that the company is collecting its receivables less frequently over time. Earlier quarters exhibited relatively higher turnover rates, with peaks above 5.7, but ratios consistently decreased particularly from 2023 onward, reaching the lowest point in mid-2025.

Average Receivable Collection Period

Correspondingly, the average receivable collection period, measured in days, exhibits an increasing trend. Starting around 63 days in early 2021, the collection period extends noticeably to about 76-77 days by mid-2025. This upward movement suggests that customers are taking longer to pay their invoices, which aligns with the declining receivables turnover ratio observed during the same timeline.

Relationship Between Metrics

There is a clear inverse relationship between the two key metrics. As the receivables turnover ratio decreases, the average collection period increases. This pattern suggests a potential weakening in collections efficiency or changes in credit terms and customer payment behaviors over the years analyzed.

Short-Term Fluctuations

Throughout the period, there are minor short-term fluctuations; for instance, small rebounds in turnover ratio occur, like in late 2023, but these are not sustained. The collection period also shows slight decreases in some quarters, reflecting possible temporary improvements in collections or seasonality, but the long-term trend remains upward.

Overall, the data imply a gradual deterioration in the pace of receivables collection, which could impact cash flow and working capital management if the trend continues. Management may need to assess underlying causes such as credit policy, customer payment behavior, or external economic factors contributing to this development.

Average Inventory Processing Period

The average inventory processing period exhibits an overall increasing trend from March 31, 2021, through September 30, 2025. Initially recorded at 71 days, it rises consistently with fluctuations around the 90-day mark by early 2022. The upward trajectory continues, reaching a peak of 104 days in June 2025, before slightly decreasing to 102 days by September 2025. This pattern indicates a gradual lengthening of the time required to process inventory over the analyzed period.

Average Receivable Collection Period

The average receivable collection period shows moderate volatility with a general tendency to increase over time. Starting at 63 days in March 2021, it fluctuates slightly throughout 2021 and 2022, moving between 61 and 73 days. From early 2023 onward, the collection period mostly hovers around 70 to 77 days, indicating a modest extension in the time taken to collect receivables, peaking at 77 days in September 2025.

Operating Cycle

The operating cycle demonstrates a clear upward trend across the entire timeframe under consideration. Beginning at 134 days in March 2021, it steadily increases, surpassing 160 days by December 2021 and continuing to rise through subsequent periods. The operating cycle achieves a maximum of 181 days in June 2025 before a slight decline to 178 days in September 2025. This extension reflects the combined impact of longer inventory processing and receivables collection periods, indicating a lengthening of the overall business operating cycle.

The analysis of the payables turnover and average payables payment period over multiple quarters reveals a consistent trend in the company's management of its payables.

Payables Turnover Ratio

The payables turnover ratio shows a gradual decline from 5.66 in the first quarter of 2021 to approximately 4.31 by the third quarter of 2025. This indicates a slower rate of paying suppliers over time, suggesting that the company is taking longer to settle its payables. The ratio decreases steadily with minor fluctuations, reflecting a possible strategic decision to extend payment terms or changes in working capital management.

Average Payables Payment Period

Corresponding to the declining payables turnover ratio, the average payables payment period increases from 65 days at the start of 2021 to a peak of 87 days by the middle of 2025 before slightly stabilizing around 85 days. This trend supports the conclusion that the company is stretching its payment cycle, resulting in longer durations before payables are settled. The increase is fairly steady, with some minor oscillations, indicating a consistent approach to lengthening payment periods over the analyzed timeframe.

Overall, the company appears to be extending the time taken to pay its suppliers gradually over the years, as evidenced by the decreasing payables turnover ratio and increasing payment period. This could be an attempt to optimize cash flow or manage liquidity more conservatively. However, the extended payment duration should be monitored to ensure supplier relationships and credit terms are not adversely affected.

The financial data reveals several notable trends in the operational efficiency metrics over the observed periods. These metrics include the average inventory processing period, average receivable collection period, average payables payment period, and the cash conversion cycle.

Average Inventory Processing Period

The inventory processing period exhibits a clear upward trend, increasing steadily from 71 days as of March 2021 to a peak of 104 days by June 2025, with a slight decrease to 102 days in September 2025. This suggests that the company is taking progressively longer to turn over its inventory, potentially indicating slower sales or increased stock levels over time.

Average Receivable Collection Period

The receivable collection period fluctuates moderately but generally shows a gradual increase from 63 days in March 2021 to a higher range around 76-77 days by mid-2025. This pattern points to a slight elongation in the time taken to collect payments from customers, which may impact cash inflows.

Average Payables Payment Period

The payables payment period also trends upward, growing from 65 days in the first quarter of 2021 to a plateau between 85 and 87 days from late 2023 onward. The extension in payment terms could indicate improved negotiated credit terms with suppliers or a deliberate strategy to optimize working capital by stretching payments.

Cash Conversion Cycle

The cash conversion cycle initially remains relatively stable around 69 days in 2021, but experiences an increase reaching 96 days by June 2025 before declining slightly to 93 days in the following quarter. The lengthening cash conversion cycle reflects the combined effect of longer inventory processing and receivables collection periods outpacing the extensions in payables payment, leading to more days where capital is tied up in operations.

Overall, the trends indicate a gradual increase in operational cycles affecting working capital, with inventory and receivables management becoming slower, partially offset by extended payment terms to suppliers. These dynamics should be monitored closely as prolonged cash conversion cycles can affect liquidity and may require strategic adjustments.