Emerson Electric Co. (NYSE:EMR)

Inventory turnover

The inventory turnover ratio shows a declining trend from 6.99 in 2014 to 5.22 in 2017, indicating a slowdown in how quickly inventory is sold or used. However, there is a slight recovery observed from 2018 onwards, with the ratio increasing to 5.62 by 2019.

Receivables turnover

This ratio demonstrates a generally positive trend over the period. Starting at 4.89 in 2014, it increases steadily to 6.15 in 2019, suggesting improved efficiency in collecting receivables over time.

Payables turnover

The payables turnover ratio fluctuates somewhat but shows a mild upward trend, moving from 4.87 in 2014 to 5.63 in 2019. This implies a tendency toward quicker payments to suppliers in recent years.

Working capital turnover

Working capital turnover experiences significant volatility. It starts at 10.17 in 2014, decreases sharply to a low of 4.76 in 2017, then exhibits an exceptional spike to 38.26 in 2018, followed by a decline to 15.8 in 2019. The spike in 2018 could indicate an unusual event or operational change affecting working capital utilization.

Average inventory processing period

The average number of days inventory is held extends gradually from 52 days in 2014 to a peak of 70 days in 2017, suggesting slower inventory turnover, then slightly decreases to 65 days by 2019.

Average receivable collection period

Receivable collection periods tend to improve over time, with days reducing from 75 in 2014 to 59 in 2019, reflecting enhanced collection efficiency.

Operating cycle

The operating cycle, which represents the total number of days from inventory acquisition to cash collection, shows some variability. It remains relatively stable around 120 days from 2014 to 2016, peaks at 143 days in 2017, then gradually declines to 124 days by 2019.

Average payables payment period

The average period to pay suppliers decreases from 75 days in 2014 to 65 days in 2019, indicating a tendency toward faster payments over the years.

Cash conversion cycle

The cash conversion cycle lengthens from 52 days in 2014 to a peak of 70 days in 2017, followed by a steady decline to 59 days in 2019. This pattern aligns with trends seen in inventory and receivables turnover, suggesting improved cash flow management after 2017.

Cost of Sales

The cost of sales experienced a significant decrease from 14,379 million US dollars in 2014 to 8,260 million US dollars in 2016. After this reduction, a gradual increase followed, reaching 10,557 million US dollars by 2019. This pattern suggests an initial improvement in cost management or a reduction in sales volume, followed by a recovery or growth phase in subsequent years.

Inventories

Inventories also declined sharply from 2,057 million US dollars in 2014 to 1,208 million US dollars in 2016. After this drop, inventories showed a steady increase through to 2019, reaching 1,880 million US dollars. This trend might indicate an initial decrease in stock levels possibly due to operational efficiency or reduced demand, with later years reflecting either increased demand or strategic inventory rebuilding.

Inventory Turnover Ratio

The inventory turnover ratio remained relatively stable, ranging between 6.99 and 7.18 from 2014 to 2015, before declining to a low of 5.22 in 2017. Subsequently, it gradually increased to 5.62 by 2019. The declining turnover ratio in 2016-2017 suggests slower movement of inventory during that period, potentially pointing to reduced sales velocity or overstocking. The modest recovery after 2017 indicates improvement in inventory management or sales performance but does not return to earlier levels.

Overall Analysis

The data reveals a period of contraction in both cost of sales and inventories between 2014 and 2016, followed by a period of growth and inventory buildup to 2019. The inventory turnover ratio decreasing in the middle years implies that inventory was not being sold as rapidly despite lower absolute stock levels, but the upward trend in later years suggests some recovery in efficiency. The interplay among these metrics indicates fluctuating operational conditions, with a potential initial phase of cost-cutting and efficiency measures, succeeded by moderate expansion and normalization.

Net Sales

Net sales show a significant decline from 24,537 million USD in 2014 to 14,522 million USD in 2016, representing a substantial contraction over this period. Following this trough, there is a recovery trend from 2017 onward, with sales increasing gradually to reach 18,372 million USD by 2019. Although the sales figures in 2019 remain below those reported in 2014 and 2015, the upward movement after 2016 indicates an improving sales performance in the latter years.

Receivables, Less Allowances

The amount of receivables, net of allowances, exhibits a downward trend from 5,019 million USD in 2014 to 2,701 million USD in 2016, mirroring the sharp reduction seen in net sales during the same interval. From 2017 to 2018, receivables increase moderately to 3,344 million USD but then decline to 2,985 million USD in 2019. Overall, receivables demonstrate sensitivity to sales fluctuations, with a lagged and less pronounced recovery compared to net sales.

Receivables Turnover Ratio

The receivables turnover ratio steadily improves over the period, increasing from 4.89 in 2014 to 6.15 in 2019. The ratio rises gradually despite fluctuations in both sales and receivables, suggesting an enhancement in the efficiency with which the company collects its receivables. The highest turnover ratio in 2019 indicates quicker collections relative to prior years, which potentially reflects more effective credit and collections management.

The analysis of the financial data reveals notable trends across the evaluated periods.

Cost of Sales

The cost of sales shows significant fluctuation with an initial decline from 14,379 million USD in 2014 to 8,260 million USD in 2016, representing a substantial reduction. However, from 2016 onward, the cost of sales rose steadily each year, reaching 10,557 million USD by 2019. This pattern suggests a period of contraction followed by gradual recovery or expansion in operational activity or input costs.

Accounts Payable

Accounts payable exhibit a downward trend from 2,951 million USD in 2014 to 1,517 million USD in 2016, mirroring the decline observed in the cost of sales. Subsequently, payables increased again to 1,943 million USD in 2018 but experienced a slight decrease to 1,874 million USD in 2019. This indicates that the company initially reduced its outstanding obligations but later increased its credit usage, with a minor pullback in the final period.

Payables Turnover Ratio

The payables turnover ratio, calculated as cost of sales divided by accounts payable, rose from 4.87 in 2014 to 5.62 in 2015, indicating a quicker payment cycle or lower credit terms. It remained relatively stable but declined slightly to 4.99 in 2017. After that, it gradually increased again, peaking at 5.63 in 2019. This suggests fluctuating efficiency or changes in payment policies, with an overall tendency towards more rapid payment of obligations or improved management of payables over the timeframe.

Overall, the data reflect a contraction phase in the middle years followed by recovery, with corresponding changes in accounts payable and payment efficiency. The interplay between cost of sales and accounts payable is consistent, and the payables turnover ratio trends imply adjustments in the company’s credit utilization and payment behavior over the six-year period.

Working Capital

Working capital exhibited a fluctuating trend over the periods analyzed. It decreased steadily from 2,413 million USD in 2014 to 1,952 million USD in 2016. In 2017, there was a significant increase reaching 3,207 million USD, followed by a sharp decline to 455 million USD in 2018. The value partially recovered to 1,163 million USD in 2019, but remained below the earlier years' levels.

Net Sales

Net sales demonstrated a decreasing trend from 24,537 million USD in 2014 to 14,522 million USD in 2016, indicating a substantial contraction during these years. From 2017 onwards, net sales showed a gradual upward trajectory, increasing to 15,264 million USD in 2017, 17,408 million USD in 2018, and 18,372 million USD in 2019, although still not reaching the earlier peak levels.

Working Capital Turnover

The working capital turnover ratio decreased consistently from 10.17 in 2014 to 4.76 in 2017, suggesting declining efficiency in utilizing working capital to generate sales. A striking increase occurred in 2018, when the ratio spiked dramatically to 38.26, followed by a decline to 15.8 in 2019. These fluctuations indicate considerable volatility in the relationship between sales and working capital during the period analyzed.

Inventory Turnover

The inventory turnover ratio exhibited a declining trend over the analyzed period. Starting at 6.99 in 2014, it increased marginally to 7.18 in 2015 but then progressively decreased each year, reaching 5.62 in 2019. This decline indicates a decrease in the frequency with which the company sold and replaced its inventory annually, suggesting a potential slowdown in inventory movement or sales efficiency.

Average Inventory Processing Period

The average inventory processing period experienced an overall increase from 52 days in 2014 to a peak of 70 days in 2017. Subsequently, there was a gradual decrease, stabilizing at 65 days by 2019. This trend is inversely related to the inventory turnover ratio and reflects a lengthening of the time inventory remains on hand before being sold or used. The rise in inventory days up to 2017 indicates slower inventory turnover, while the slight reduction from 2018 onwards suggests some improvement in inventory management efficiency, though not to previous levels.

Overall Analysis

The data reveals a clear negative correlation between inventory turnover and the average inventory processing period. The increase in inventory days complements the decline in turnover ratio, suggesting that the company faced challenges in managing inventory efficiently during the middle years of the period. Although some improvement is noted towards the end of the period, the metrics have not returned to the levels observed in 2014 and 2015. This pattern could be indicative of changing market conditions, alterations in sales velocity, or internal adjustments to inventory policies.

The financial data reveals trends in receivables turnover and the average receivable collection period over a six-year span.

Receivables Turnover Ratio

The receivables turnover ratio shows a general upward trend from 4.89 in 2014 to 6.15 in 2019. After a moderate increase from 2014 to 2016, reaching 5.38, there was a slight decline in 2017 to 4.97. However, the ratio resumed an upward trajectory in the subsequent years, increasing to 5.21 in 2018 and peaking at 6.15 in 2019. This indicates an overall improvement in the company's efficiency in collecting receivables over the period analyzed.

Average Receivable Collection Period

The average collection period, measured in number of days, shows a decreasing trend, moving from 75 days in 2014 to 59 days in 2019. This downward trend indicates that the company reduced the time taken to collect its receivables. There was some fluctuation, with the period decreasing from 75 days in 2014 to 68 days in 2016, followed by a slight increase to 73 days in 2017, then returning to a downward trajectory for the final two years, ending at 59 days in 2019.

Overall, these trends point towards an enhanced receivables management performance over the years, with increased turnover ratio and reduced collection period reflecting improved cash flow efficiency.

Inventory Processing Period

The average inventory processing period showed a relatively stable pattern from 2014 to 2016, fluctuating within a narrow range of 51 to 53 days. However, a notable increase occurred in 2017, with the period rising sharply to 70 days. Following this peak, there was a gradual reduction in the subsequent years, reaching 65 days by 2019. Despite this decrease, the period remained elevated compared to the earlier years.

Receivable Collection Period

The average receivable collection period decreased steadily over the six-year span. Starting from 75 days in 2014, it gradually shortened year over year, reaching 59 days in 2019. This indicates an improvement in the efficiency of receivables management, with faster conversion of credit sales into cash.

Operating Cycle

The operating cycle exhibited an initial decline from 127 days in 2014 to 121 days in 2016, suggesting improved overall operational efficiency during this period. However, in 2017, the cycle extended significantly to 143 days, partly influenced by the increase in the inventory processing period. It then decreased in the following years, settling at 124 days in 2019, which is somewhat closer to the earlier levels but still elevated compared to the lowest point in 2016.

Overall Analysis

The data reflects some volatility primarily driven by changes in inventory management. While the receivable collection period consistently improved, the fluctuations in inventory processing period had a substantial impact on the operating cycle, particularly evident in the spike during 2017. The post-2017 trend suggests efforts to partially reverse the extended inventory holding but not to the initially more efficient levels observed earlier in the period. The shortening of the receivable collection period remains a positive sign of enhanced liquidity management.

Payables Turnover

The payables turnover ratio demonstrates a fluctuating trend over the six-year period. Starting at 4.87 in 2014, there is an increase to 5.62 in 2015, followed by a slight decline to 5.44 in 2016. The ratio decreases further to 4.99 in 2017 but then rises again, reaching 5.63 by 2019, which is the highest value observed in the timeframe. This indicates variations in the frequency of payment to suppliers, with a general tendency towards quicker payments in the latter years.

Average Payables Payment Period

The average payables payment period, measured in number of days, inversely mirrors the pattern of the turnover ratio. It starts at 75 days in 2014, decreases significantly to 65 days in 2015, and then increases slightly to 67 days in 2016. The period extends to 73 days in 2017, reduces marginally to 71 days in 2018, and decreases back to 65 days by 2019, the lowest point in the dataset. This trend suggests variations in the company's payment practices, with periods of delayed payments interspersed with more prompt settlements, culminating in a more efficient payment cycle at the end of the period.

Overall Insights

The inverse relationship between payables turnover and average payment period is consistent with financial principles, as a higher turnover corresponds to a shorter payment period. The data reflects some oscillation in payment behavior, possibly influenced by operational or market conditions. The improvement in payables turnover and reduction in payment period toward 2019 indicate strengthened supplier payment management and potentially improved liquidity position or negotiating power with suppliers during this period.

The financial data reveals several notable trends in inventory management, receivables collection, payables payment, and overall cash conversion cycle over the six-year period analyzed.

Average Inventory Processing Period

The average inventory processing period fluctuated moderately, starting at 52 days in 2014 and slightly increasing to 53 days by 2016. It then rose more significantly, peaking at 70 days in 2017 before gradually declining to 65 days by 2019. This pattern suggests some challenges in inventory turnover around 2017, followed by improved efficiency in subsequent years.

Average Receivable Collection Period

The average receivable collection period showed a consistent downward trend overall. Beginning at 75 days in 2014, it steadily decreased almost every year to reach 59 days by 2019. This improvement indicates enhanced effectiveness in collecting receivables, which positively impacts cash flow management.

Average Payables Payment Period

The average payables payment period presented more variability, starting at 75 days in 2014, then declining sharply to 65 days in 2015. It experienced minor increases and decreases afterward, peaking again at 73 days in 2017 before decreasing to 65 days in 2019. This suggests attempts to balance supplier payment terms with cash availability, with a tendency towards quicker payments in later years.

Cash Conversion Cycle

The cash conversion cycle closely mirrored the inventory and payables trends, beginning at 52 days in 2014 and increasing moderately to 57 days in 2015. It then decreased slightly in 2016 before rising sharply to 70 days in 2017. Following this peak, it declined steadily to 59 days by 2019. The spike in 2017 corresponds with the longer inventory processing period and payables payment period in that year, suggesting temporary operational inefficiencies that were later addressed to enhance cash cycle performance.

Overall, the data indicates a period of operational adjustment around 2017, followed by improvements in receivables collection and inventory management that contributed to better cash cycle dynamics by 2019.