Eaton Corp. plc (NYSE:ETN)

Inventory Turnover

The inventory turnover ratio exhibits a clear declining trend from 5.88 at the end of March 2021 to 3.51 by June 2025. This gradual decrease suggests that inventory is being turned over less frequently over time, which may indicate slower sales or an accumulation of inventory relative to cost of goods sold.

Receivables Turnover

The receivables turnover ratio also shows a gradual decline from 6.15 in March 2021 to 4.74 in June 2025, with some fluctuations along the way. This pattern suggests that the company is collecting its receivables more slowly, possibly indicating relaxed credit terms or challenges in collection efficiency.

Payables Turnover

Payables turnover follows a consistent downward trend from 6.24 in March 2021 to around 4.27 by June 2025. This decrease means the company is paying its suppliers at a slower pace over time, potentially managing cash flow by extending payment terms.

Working Capital Turnover

Working capital turnover shows marked volatility, with unusually high values recorded in several quarters (e.g., 21.65 in September 2020 and 65.65 in March 2021), which are likely due to anomalous working capital levels or timing differences in financial reporting. Outside these spikes, the ratio tends to decline from around 10.69 in December 2021 to 6.31 in March 2024, followed by a subsequent rise to 11.29 in June 2025. The fluctuations indicate variability in how efficiently working capital is utilized to generate revenues.

Average Inventory Processing Period

The average inventory processing period steadily lengthens from 62 days in March 2021 to 104 days in June 2025. This increase substantiates the declining inventory turnover, suggesting that inventory is held for longer periods before sale, which may affect liquidity and storage costs.

Average Receivable Collection Period

The collection period slightly increases from 59 days in March 2021 to 77 days in June 2025, with minor fluctuations. This trend corresponds with the reduced receivables turnover, implying customers take longer on average to pay their invoices.

Operating Cycle

The operating cycle shows a general upward trend, increasing from 121 days in March 2021 to 181 days in June 2025. This reflects the combined impact of longer inventory processing and receivables collection periods, indicating a longer time frame to convert raw materials into cash collected from customers.

Average Payables Payment Period

The average payables payment period increases steadily from 58 days in March 2021 to a peak near 87 days between late 2023 and 2024, before slightly declining to 85 days in mid-2025. This suggests strategic extension of payment terms with suppliers, potentially to manage cash outflow amid lengthening the cash conversion cycle.

Cash Conversion Cycle

The cash conversion cycle fluctuates but shows a general increasing tendency, moving from 63 days in March 2021 to a high of 96 days in June 2025. The increase is driven largely by longer inventory and receivables periods, despite extended payables payment. The lengthening cash conversion cycle indicates that the company takes more time to convert its investments in inventory and receivables back into cash, which may impose pressure on liquidity management.

Cost of Products Sold

The cost of products sold exhibits a generally upward trend over the observed periods. Starting at 3,302 million USD in March 2020, it decreased initially to 2,877 million USD in June 2020, followed by fluctuations with a gradual increase reaching 4,431 million USD in June 2025. Periodic rises and slight declines are evident, but overall the figure suggests growth in costs related to products sold, especially notable from 2023 onwards.

Inventory

Inventory levels demonstrate a consistent and significant growth pattern from 2,346 million USD in March 2020 to 4,581 million USD in June 2025. This continuous increase, with only minor pauses, indicates an accumulation of stock or increased investment in inventory over the years. The steady rise in inventory corresponds with the upward trend in the cost of products sold.

Inventory Turnover Ratio

Inventory turnover ratio data, available from December 2020 onward, displays a declining trend beginning at 5.88 in December 2020 and falling to 3.51 by June 2025. The downward trend suggests that the company is turning over its inventory less frequently over time, potentially indicating slower sales cycles or increased stock levels relative to the cost of goods sold. The decrease is gradual but steady, which may warrant further investigation into inventory management and sales efficiency.

The financial data reveals several notable trends in operational performance and liquidity over the reported periods.

Net sales

Net sales exhibited an overall upward trajectory from 4,789 million US dollars in the first quarter of 2020 to 7,028 million US dollars by the second quarter of 2025. Despite some short-term fluctuations, including a dip from June 2020 (3,856 million) to several quarters afterward, sales recovered consistently after mid-2021. The growth appears steady, with a particularly marked increase after 2023, indicating expanding revenue generation capacity.

Accounts receivable, net

Accounts receivable similarly increased over the period, starting at 2,951 million US dollars in the first quarter of 2020 and rising to 5,486 million US dollars by mid-2025. This steady rise parallels the increase in net sales, suggesting consistent credit sales policies and growing customer balances. The growth in receivables is persistent, with few periods of minor contraction or stabilization.

Receivables turnover ratio

The receivables turnover ratio demonstrates a downward trend from 6.15 in late 2020 to 4.74 by mid-2025. This decline indicates a slower collection process over time, implying that, on average, accounts receivable are turning into cash less frequently. The fall in turnover ratio alongside rising receivables suggests potential elongation of credit terms or delays in collections, which may impact liquidity if not managed properly.

In summary, while net sales growth conveys positive top-line expansion, the concurrent increase in accounts receivable and weakening of receivables turnover ratio signals a potential risk in cash conversion efficiency. Continuous monitoring and potentially enhanced credit controls may be necessary to mitigate risks associated with slower collections.

The cost of products sold demonstrates a generally upward trend over the observed quarters, increasing from 3,302 million US dollars in March 2020 to 4,431 million US dollars in June 2025. Despite some fluctuations, the overall trajectory reflects steady growth in costs, with occasional marginal declines or plateaus between quarters, particularly in the mid-periods.

Accounts payable similarly shows an increasing pattern, rising from 1,785 million US dollars in March 2020 to 3,762 million US dollars in June 2025. This increase suggests an expansion in the company's obligations to suppliers or vendors, possibly reflecting growth in operations or extended payment terms. The increase is fairly consistent, with minor periods of stagnation or slight decreases.

The payables turnover ratio exhibits a declining trend from 6.24 times in June 2020 to approximately 4.27 times in June 2025. This ratio measures how many times payables are paid off during a period; thus, the decrease indicates that the company is taking longer to pay its suppliers over time. The reduction in turnover is gradual but steady, highlighting a lengthening of the payment cycle or changes in supplier credit terms.

Cost of Products Sold

Shows consistent growth over the five-year span, increasing by approximately 34% from the initial to the final data point.

Accounts Payable

Nearly doubles over the same period, indicating increased liabilities or extended payable terms.

Payables Turnover

Declines progressively, suggesting a slower payment pace to suppliers, which could impact supplier relationships or reflect strategic cash management.

Overall, the financial data indicates expansion in operational scale accompanied by more considerable payables and a moderated payment pace. This pattern might suggest strategic management of working capital but warrants careful monitoring to ensure supplier relations and credit terms remain favorable.

The working capital exhibited significant fluctuation over the observed periods. Initially, it started at a relatively high level, reaching 3,726 million US dollars in the first quarter of 2020, but then declined notably, even turning negative in early 2022. Following this trough, working capital rebounded substantially, reaching a peak of 4,532 million US dollars by mid-2024 before experiencing a downward trend again toward 2,303 million US dollars by mid-2025.

Net sales demonstrated a steady upward trend throughout the timeframe. Beginning at approximately 4,789 million US dollars in the first quarter of 2020, net sales consistently increased with some seasonal variations, reaching over 7,000 million US dollars by mid-2025. There was no evident decline in net sales during any of the quarters, indicating overall business growth.

The working capital turnover ratio, which is an indicator of how efficiently working capital is utilized to generate sales, showed a high degree of volatility initially and was not available for early quarters. The ratio exhibited extremely high values during some quarters in 2021, suggesting either very low or negative working capital figures during that period. From early 2022 onward, the ratio stabilized and depicted a gradual declining trend from 11.29 down to approximately 5.33, with some recovery to around 8.69 towards mid-2025. This suggests a shift towards more consistent but less aggressive utilization of working capital in relation to sales.

Working Capital

Showed instability with a major dip turning negative in early 2022, followed by a recovery to a peak in mid-2024 and a subsequent decline by mid-2025.

Net Sales

Consistently increased from 4.79 billion US dollars in early 2020 to over 7 billion US dollars by mid-2025, indicating steady growth.

Working Capital Turnover

Highly volatile in initial periods with extreme values linked to low or negative working capital, then stabilized from 2022 with a gentle downward trend and slight recovery towards the end of the period.

Inventory Turnover

The inventory turnover ratio demonstrates a clear downward trend from the earliest recorded data point onward. Starting at 5.88 in the period ending March 31, 2021, the ratio consistently declines each quarter, reaching 3.51 by the period ending June 30, 2025. This decline indicates a slower rate of inventory being sold and replaced over time, suggesting potential challenges in inventory management or changes in sales velocity.

Average Inventory Processing Period

Corresponding to the inventory turnover trend, the average inventory processing period exhibits a continuous increase over the same timeframe. Beginning at 62 days in the quarter ending March 31, 2021, the number of days required to process inventory lengthens steadily, extending to 104 days by June 30, 2025. This implies that inventory remains in stock for a longer duration before being sold, reflecting lower efficiency in inventory turnover or possible shifts in product demand or supply chain dynamics.

Overall Observations

The inverse relationship between inventory turnover and average inventory processing period aligns with typical inventory behavior: as inventory turnover decreases, the time inventory is held increases. The sustained trends over multiple years highlight an ongoing decrease in inventory movement efficiency, which may warrant further investigation into sales strategies, supply chain processes, or market conditions influencing inventory levels.

Receivables Turnover

The receivables turnover ratio shows a declining trend from 6.15 in March 2021 to 4.74 in June 2025, indicating a decrease in the frequency of collections over the observed period. The ratio fluctuates moderately around a generally downward slope, suggesting a gradual decline in the efficiency of receivables collection. The turnover ratio remains above 4.7 throughout the time frame but does not recover to the higher levels seen at the start.

Average Receivable Collection Period

The average receivable collection period, measured in days, exhibits an upward trend from 59 days in March 2021 to 77 days in June 2025. This increase signals that the time taken on average to collect receivables has extended over time. There are cyclic fluctuations in the data, but the general movement is towards a longer collection period. The starting point near 59 days increases to peaks in the low seventies, concluding at the highest observed value of 77 days.

Relationship Between Ratios

The inverse relationship between the receivables turnover ratio and the average receivable collection period is consistent across the timeline. As the turnover ratio declines, the collection period lengthens, reflecting slower receivables turnover and potentially increasing credit risk or collection inefficiency.

Overall Implications

The observed trends indicate a gradual reduction in the efficiency of accounts receivable management. This could impact cash flow and working capital requirements, suggesting the need for focused attention on credit policies and collection processes to mitigate the elongation in collection periods and maintain financial health.

The data reveals a consistent upward trend in the average inventory processing period over the observed quarters. Starting from an initial value of 62 days in March 2021, the period steadily increases to 104 days by June 2025. This incremental rise suggests a lengthening time in inventory turnover, potentially indicating slower sales or increased stock levels.

Similarly, the average receivable collection period displays a generally increasing pattern. From 59 days recorded in March 2021, it fluctuates slightly but shows an overall increase to 77 days by June 2025. This implies a gradual extension in the time taken to collect receivables, which may affect cash flow and liquidity.

The operating cycle, representing the combined duration of inventory processing and receivable collection periods, exhibits a parallel rising trajectory. Beginning at 121 days in March 2021, it grows to 181 days by June 2025, reflecting the cumulative effect of the lengthening inventory and receivables periods. This extension in the operating cycle indicates a slower conversion of inventory into cash, which could impact working capital management.

Average Inventory Processing Period

Increased from 62 days (Mar 2021) to 104 days (Jun 2025), showing a consistent upward trend which may indicate slower inventory turnover or accumulation of stock.

Average Receivable Collection Period

Rose from 59 days (Mar 2021) to 77 days (Jun 2025) with some fluctuations, suggesting longer credit periods or slower customer payments.

Operating Cycle

Extended from 121 days (Mar 2021) to 181 days (Jun 2025), reflecting the combined effect of increasing inventory processing and receivable collection periods, potentially affecting liquidity and cash conversion efficiency.

Payables Turnover Trend

The payables turnover ratio shows a clear declining trend starting from the earliest available period. Initially, the ratio is relatively high at 6.24 in March 2021, then steadily decreases over successive quarters. By June 2025, the payables turnover ratio reaches a lower range around 4.26 to 4.27. This decrease indicates that the company is taking longer to pay its suppliers, resulting in fewer turnovers of payables within each period.

Average Payables Payment Period Trend

Corresponding to the declining payables turnover, the average payables payment period increases over time. Starting at 58 days in March 2021, the payment period extends progressively each quarter, reaching up to 87 days by June 2025. There are minor fluctuations around the 80+ days range between late 2022 and early 2023, but the overall trajectory is upward, signaling longer credit periods or slower payment cycles.

Relationship Between Payables Turnover and Payment Period

The inverse relationship between payables turnover and average payment period is evident. As the payables turnover ratio declines, the average payment period increases, which is consistent with standard financial interpretation—when payables turnover decreases, the company takes more time to settle its obligations, lengthening the payment period.

Insights on Financial Practices

The gradual extension of the average payment period may suggest a strategic approach to cash management, possibly aimed at improving liquidity by deferring cash outflows. However, extended payment periods could also impact supplier relationships and credit terms. Monitoring these metrics remains important to ensure sustainable supplier financing and operational continuity.

The analysis of the quarterly financial periods reveals significant trends and shifts in the company's working capital efficiency over the considered time frame.

Average Inventory Processing Period

The average inventory processing period shows a steady upward trend across the available data. Starting at 62 days in the first observation, it increases gradually to reach 104 days by the most recent period. This consistent increase suggests that inventory remains on hand for longer durations, potentially indicating challenges in inventory management or changes in sales velocity.

Average Receivable Collection Period

The average receivable collection period also exhibits a generally increasing trend, although with some fluctuations. From an initial 59 days, it rises to around 73 days during several periods and peaks at 77 days toward the later intervals. This pattern may suggest lengthening credit terms or slower collections from customers, which could impact cash flow.

Average Payables Payment Period

The average payables payment period increases consistently from 58 days to a peak of 87 days before showing minor declines yet remaining elevated around the mid-80 day range. This extension implies the company is taking longer to settle its obligations, potentially optimizing cash on hand or negotiating more favorable payment terms with suppliers.

Cash Conversion Cycle

The cash conversion cycle initially rises from 63 days to a peak over 90 days, reflecting the combined effect of extended inventory processing and receivables periods offset partially by the payables period. Despite some volatility, the cycle remains elevated, indicating a lengthening of the time required to convert investments in inventory and receivables back into cash. Such an increase can pressure liquidity and suggests a need for enhanced working capital management.

Overall, the data reflects increased holding and collection periods alongside extended payment terms. The rising cash conversion cycle highlights a trend toward slower cash flow turnover, which may necessitate strategic reviews of credit policies, inventory controls, and supplier agreements to improve operational efficiency and liquidity.