Emerson Electric Co. (NYSE:EMR)

Inventory Turnover

The inventory turnover ratio exhibited moderate fluctuations over the observed quarters. Starting at 6.75, it declined to a low of 4.47 in June 2017, indicating slower inventory movement, and subsequently stabilized around the 5.0 to 5.6 range. This suggests periods of reduced efficiency in managing inventory followed by some improvements.

Receivables Turnover

The receivables turnover ratio remained relatively stable with slight volatility. It began near 5.57 and experienced a notable dip to around 4.09 in June 2016, reflecting slower collection of receivables during that period. However, from late 2018 onward, the ratio improved steadily, reaching 6.80 by March 2020, indicating enhanced effectiveness in collecting payments.

Payables Turnover

Payables turnover showed a variable pattern, initially declining from 5.80 to about 4.25 in mid-2016, which implies delayed payment to suppliers. Thereafter, an upward trend is apparent, with the ratio increasing to nearly 6.79 by the first quarter of 2020. This points to an acceleration in the rate at which the company settled its payables more recently.

Working Capital Turnover

The working capital turnover ratio presented significant variability with some extreme values. Initially ranging around 15, the ratio decreased markedly to lows near 2.5 in late 2016 and early 2017, suggesting inefficient use of working capital during that period. Subsequently, a sharp increase to values exceeding 38 and even 195 in late 2018 and early 2020 respectively indicates possible one-off events or accounting adjustments; these outliers warrant further investigation for context.

Average Inventory Processing Period

The average inventory processing period fluctuated between approximately 51 and 82 days. It lengthened notably around mid-2017, indicating slower turnover, and then gradually shortened again but remained above the initial levels, suggesting moderate efficiency in inventory management with some periods of slowdown.

Average Receivable Collection Period

The receivable collection period varied moderately, rising from around 65 days initially to a peak near 89 days in mid-2016, then generally decreasing to about 54 days by early 2020. This trend implies initial challenges in collections which improved over time, enhancing cash inflows.

Operating Cycle

The operating cycle showed considerable oscillation, increasing from about 120 days to a peak of roughly 164 days in mid-2016, indicative of lengthened overall business cycles. This was followed by a gradual decline towards the end of the observed periods, settling around 125 days, representing improvements in the cycle duration.

Average Payables Payment Period

The average payables payment period extended from about 63 days to a high near 86 days in mid-2016, suggesting the company took longer to pay suppliers during that time. Later, this period shortened significantly to around 54 days, reflecting an acceleration in payments and possibly improved supplier relations.

Cash Conversion Cycle

The cash conversion cycle initially hovered around 57 days but increased to about 84 days during mid-2017, indicating elongated time to convert investments back into cash. This was followed by a decrease towards approximately 59 days near the end of 2019, before increasing slightly to 73 days by early 2020. The overall pattern signals variable efficiency in cash flow management with some recent minor declines.

The quarterly financial data reveals several notable trends in cost of sales, inventories, and inventory turnover over the observed period.

Cost of Sales

The cost of sales demonstrates fluctuating patterns with some periods of decline followed by recovery. Specifically, there is a marked decrease in cost of sales during the quarters ending in December 2015 through December 2016 compared to the prior year averages. Post-2016, the cost of sales typically trends upwards with occasional dips towards the end of 2019 and early 2020, indicating some variability but an overall recovery and growth trend after the 2015–2016 troughs.

Inventories

Inventories exhibit a generally mixed trajectory. Initially, inventory levels are relatively stable with slight fluctuations through 2015. Notably, there is a significant reduction in inventory in the third and fourth quarters of 2016, representing a sharp deviation from previous trends. This reduction is followed by a rebound in inventory levels through 2017 and 2018, with some moderate variability by quarter. Inventory levels appear to peak in mid-2019 and then decline somewhat towards the end of that year and into early 2020, suggesting efforts at inventory management and adjustment to demand or operational changes.

Inventory Turnover Ratio

The inventory turnover ratio exhibits considerable volatility during the period. Early on, the ratio is relatively high, exceeding 6 in most quarters through 2015, with a peak at 7.18 in September 2015, indicating efficient inventory usage. A downtrend occurs through 2016 with the ratio dropping to a low near 4.87, coinciding with the unusual inventory level adjustments observed in that period. From 2017 onward, the ratio fluctuates mostly between 4.5 and 5.5, indicating a somewhat reduced but more stable turnover efficiency compared to earlier years. The inventory turnover shows moderate improvement towards the end of 2019 but remains below the earlier peak levels.

In summary, the data indicates a period of inventory and cost of sales adjustment around 2015–2016, with recovery and relative stabilization in subsequent years. Inventory management appears to have been dynamic, likely in response to changes in demand or operational strategy, as reflected in the fluctuations of both the inventory levels and turnover ratios. The trends suggest efforts to optimize inventory utilization while managing cost pressures over time.

The analysis of the quarterly financial data reveals several notable trends across the key items of Net Sales, Receivables, and Receivables Turnover over the observed periods.

Net Sales

Net sales display considerable volatility across quarters with a general pattern of initial fluctuation followed by gradual recovery. Starting around 5,587 million USD at the end of 2014, there is a marked decline in the second half of 2015, reaching a low point of approximately 3,216 million in December 2016. This downward trend appears aligned with decreases in receivables during similar intervals. Following this trough, net sales progressively improve, peaking around 4,971 million by the third quarter of 2019 before experiencing another decline toward early 2020.

Receivables, Less Allowances

Receivables exhibit a similar declining pattern in the mid-years, dropping from approximately 4,404 million USD at the end of 2014 to about 2,426 million in December 2016. Afterward, there is a fluctuating recovery phase with values oscillating between roughly 2,600 and 3,300 million USD until early 2020. This indicates a contraction in the amount of credit extended or collected faster during the period corresponding to the dip in net sales, followed by efforts to stabilize receivables levels in subsequent quarters.

Receivables Turnover Ratio

The receivables turnover ratio reflects the efficiency of collection practices and shows a mixed, yet strengthening trend over time. Initially near 5.57, the ratio trends downwards to a low approximately around 4.09 by mid-2016, coinciding with the period of reduced sales and receivables. Following this, the ratio recovers and generally increases, achieving levels above 6.0 in the quarters of 2019 and early 2020. This suggests improved collection efficiency or faster conversion of receivables to cash, indicative of tighter credit management or changes in customer payment behavior.

Overall, the financial data indicates a phase of operational contraction and decline in sales and receivables during mid-2015 through 2016, followed by a period of recovery and improvement in sales as well as enhanced collection efficiency. The trends highlight an adaptive response in credit policies and sales performance dynamics in line with changing market conditions over the reported intervals.

Cost of Sales

The cost of sales exhibited fluctuations over the observed periods. Initially, the values ranged around the 3200 to 3450 million US dollars mark during 2014 and 2015. A notable dip occurred at the end of 2015, where the cost of sales decreased significantly to approximately 1923 million US dollars. Following this decline, a recovery trend took place through 2016 and 2017, with values rising back above 2600 million US dollars in some quarters. The cost of sales during 2018 and 2019 showed some variability but generally remained in the 2300 to 2850 million US dollars band. The values at the beginning of 2020 indicate relative stabilization around 2400 million US dollars. Overall, the cost of sales demonstrated cyclical behavior with periods of contraction and expansion over five years.

Accounts Payable

Accounts payable showed a general downward trend over the examined timeframe. Starting from about 2468 million US dollars at the end of 2014, there were intermittent decreases and increases, but the amount notably declined to values closer to 1500 to 1600 million US dollars towards early 2020. Several quarters show more pronounced reductions, such as in late 2015 and mid-2016, where the figures dropped significantly. Although there were some periods of increase, these were generally followed by further decreases. This pattern suggests a tendency toward reduced outstanding liabilities on a quarterly basis as the company progressed through the years.

Payables Turnover Ratio

The payables turnover ratio reflected variability during the reported periods, ranging approximately between 4.25 and 6.79. Early periods in 2014 and 2015 maintained a ratio near 5.8 to 5.9, indicating a relatively stable number of times the company settled its accounts payable annually. A dip to 4.25 was observed in mid-2016, representing a slower turnover of payables during that quarter. Subsequently, the ratio fluctuated with increases to above 6.0 in some quarters, especially around late 2017, early 2018, and towards late 2019 and early 2020 where the highest value of 6.79 was recorded. These fluctuations may reflect changing payment practices or shifts in working capital management, with a general upward trend in recent quarters indicating more rapid payment cycles.

Summary

The financial trends suggest an overall dynamic environment in cost management and payment cycles. The cost of sales experienced variability with noticeable declines and recoveries, which could be associated with operational adjustments or market conditions. Accounts payable decreased over time, denoting possible improvement in liability settlements or negotiating better payment terms. Concurrently, the payables turnover ratio exhibited variations but showed an increasing tendency toward the end, pointing to accelerated accounts payable processing. Together, these indicators reveal active management of operational costs and short-term obligations across the analyzed periods.

Working Capital

The working capital experienced notable fluctuations over the reported quarters. From the end of 2014 through 2015, the working capital generally increased, peaking at 4,731 million USD by the end of 2016. After this peak, the figure showed significant volatility, dropping sharply to -882 million USD in early 2019, indicating a possible liquidity or operational challenge during that period. Following this low, the working capital recovered slightly to positive values but remained relatively low and unstable through early 2020, suggesting ongoing variability in short-term financial position.

Net Sales

Net sales reveal a varying trend with some seasonal or cyclical elements. The sales decreased significantly in late 2015 and the first half of 2016 compared to prior periods but increased again from late 2016 through 2018, reaching close to 4,800 million USD by the third quarter of 2018. Following this rise, sales were moderately volatile but stayed within the 4,000 to 5,000 million USD range through early 2020, indicating overall growth with intermittent fluctuations in revenue generation capabilities.

Working Capital Turnover

The working capital turnover ratio demonstrated marked variability. Initially, the ratio showed a downtrend from about 15 in 2014 to a low near 3 by the end of 2016, signaling a decline in efficiency with respect to generating sales from working capital. After this period, turnover rebounded somewhat, showing sharp increases in 2018 and 2019, reaching unusually high values above 38 and 41 in some quarters, signaling temporary spikes in efficiency or possible anomalies in working capital management. The exceptionally high value exceeding 195 in early 2020 suggests an outlier or exceptional condition warranting further investigation. Overall, the ratio’s fluctuations correlate with the changes in working capital and net sales, reflecting shifting operational efficiency and capital usage.

The financial data reveals notable fluctuations in inventory management efficiency over the examined periods. Two key metrics—inventory turnover ratio and average inventory processing period—display inverse trends, reflecting changes in inventory handling speed and operational dynamics.

Inventory Turnover Ratio

The inventory turnover ratio exhibits variability throughout the timeline, with values ranging approximately from 4.47 to 7.18. Initially, the ratio maintains relatively high levels around 6.7 to 7.18 during the earlier periods of 2014 and early 2015, indicating efficient inventory turnover. A downward trend follows in mid-2015 through mid-2016, reaching a minimum around 4.47 in mid-2017, suggesting slower inventory movement. Subsequently, some recovery in turnover is apparent, with the ratio moving back above 5 in later periods. However, it does not regain the earlier highs, stabilizing mostly between 5 and 5.6 during 2018 and 2019. The data for early 2020 shows a slight decline toward 5.02, indicating a relatively steady but moderate pace of inventory turnover compared to earlier years.

Average Inventory Processing Period

In contrast, the average inventory processing period measured in days shows a reciprocal pattern relative to the turnover ratio. Periods of higher turnover correspond to shorter inventory processing times, and vice versa. Early data points indicate processing times between 51 and 57 days, aligning with the higher turnover rates. Mid-2015 through mid-2017 phases witness an increase in processing days, peaking at around 82 days, reflecting slower inventory movement and possible operational inefficiencies. The subsequent periods show a general trend of declining processing durations, but these remain longer than initial values, mostly fluctuating between 65 and 73 days. This indicates a sustained lengthening in inventory holding periods over the medium term.

Overall Insights

The observed trends suggest that inventory management efficiency declined during the mid-2015 to mid-2017 window, with slower turnover and longer holding periods prior to partial recovery. Despite some improvement post-2017, the metrics do not return to the highest levels seen at the beginning of the dataset, implying enduring challenges or strategic shifts in inventory policies. The relative stabilization of both ratios in recent years points to a consistent, albeit more moderate, inventory processing pace.

The analysis of the receivables turnover ratio and average receivable collection period over the observed quarters reveals notable fluctuations and an overall improvement towards the end of the period.

Receivables Turnover Ratio

The receivables turnover ratio started at 5.57 at the end of 2014 and experienced a decline reaching a low point of 4.09 in the second quarter of 2016. This decline suggests a decreasing efficiency in collecting receivables early in the period. Following this trough, an upward trend is observed, with the ratio recovering and increasing to 6.80 by the first quarter of 2020.

This improvement from mid-2016 onward indicates enhanced effectiveness in converting receivables into cash over time, peaking near the end of the timeline and suggesting tighter credit policies or better collection processes in later periods.

Average Receivable Collection Period

The average collection period, measured in days, mirrors the trend seen in the receivables turnover ratio but from an inverse perspective, as expected. Initially measured at 66 days in December 2014, the collection period increased, reaching a high of 89 days in the second quarter of 2016, indicating slower collections during that time.

Subsequent quarters saw a consistent reduction in the collection period, falling to 54 days by the first quarter of 2020. This decrease signifies improved efficiency in collecting receivables, aligning with the rising receivables turnover ratio and reflecting enhanced liquidity management.

Overall Trend and Insights

The period from late 2014 through mid-2016 was characterized by declining receivables management efficiency, as evidenced by a falling turnover ratio and increasing collection period. However, from mid-2016 onwards, the company appears to have strengthened its receivables processes, as shown by steadily improving turnover ratios and shortening collection periods.

The improved receivables turnover and reduced collection days towards the end of the observed period suggest better working capital management, potentially contributing positively to cash flow and reducing credit risk exposure.

Average Inventory Processing Period

The average inventory processing period demonstrates notable variability over the observed quarters. Initially, it oscillates around the mid-50s to high 50s range, with a low of 51 days in September 2015. A rise is seen during 2016, peaking at 75 days in June. Afterward, the period fluctuates between the high 60s and low 70s, reaching a maximum of 82 days in June 2017. In the most recent quarters, the period remains somewhat stable around the low 70s, ending at 73 days in March 2020. This pattern suggests increasing time tied up in inventory processing over the years, with occasional short-term reversals.

Average Receivable Collection Period

The average receivable collection period generally trends with some fluctuations within a range of approximately 54 to 89 days. It starts at 66 days and gradually increases, peaking at 89 days in June 2016, indicating a period where collections were slower. Following this peak, the collection period declines steadily, reaching the low 50s by early 2020. This trend towards shorter collection periods in recent years reflects an improvement in receivables management or faster cash inflow from customers.

Operating Cycle

The operating cycle shows a pattern that corresponds broadly with the trends in inventory processing and receivables collection periods. It ranges from around 118 to 164 days. A notable peak occurs in June 2016 at 164 days, attributed largely to the high inventory processing and receivables collection at that time. After this peak, the operating cycle tends to decline, stabilizing around the 120-130 days range towards the end of the timeline. This decrease in the operating cycle suggests enhanced operational efficiency, with quicker turnover of inventory and receivables contributing to freeing up working capital.

The payables turnover ratio demonstrates moderate fluctuations over the observed periods. Initially, the ratio shows a decrease from 5.8 to 4.25 between December 2014 and June 2016, indicating a possible slowdown in the frequency of payables being paid during that phase. Following this decline, the ratio recovers and exhibits a generally upward trend, reaching 6.79 by March 2020, which suggests an improvement in the efficiency of payables management or faster payment cycles in the latter periods.

Correspondingly, the average payables payment period, measured in days, moves inversely to the payables turnover ratio. It rises from 63 days at the end of 2014 to a peak of 86 days in June 2016, highlighting a lengthening in the time taken to settle payables, which aligns with the lower turnover ratio observed. After mid-2016, the payment period begins to shorten progressively, reaching 54 days by March 2020. This contraction signals a quicker payment process towards the end of the timeline.

Overall, these metrics indicate that there was a period of extended payment terms or slower payables turnover during 2015 to mid-2016. However, from that point onwards, the trend reverses, with the company seemingly optimizing its payable management leading to faster payments and improved turnover ratios by early 2020.

Average Inventory Processing Period

The average inventory processing period fluctuated throughout the observed quarters, starting at 54 days at the end of 2014 and generally exhibiting an increasing trend until mid-2016, where it reached a peak of 75 days. Following this peak, the period decreased but remained elevated relative to the initial value, oscillating between 65 and 73 days from early 2017 through the first quarter of 2020. This indicates variability in inventory turnover speed, with occasional spikes suggesting slower inventory processing at times.

Average Receivable Collection Period

The average receivable collection period demonstrated some variability, beginning at 66 days and increasing to 89 days by mid-2016, indicating a longer time to collect receivables during this period. After this peak, the collection period generally declined, reaching its lowest points around 54 to 59 days in late 2018 and early 2020, reflecting improved efficiency in collecting receivables during these intervals. The trend shows periods of both elongation and contraction in collection times.

Average Payables Payment Period

The average payables payment period followed a pattern somewhat similar to the other cycles. Beginning near 63 days, it increased steadily to a high of 86 days around mid-2016, then decreased to lower levels close to 54 to 65 days by early 2020. This suggests that the company initially delayed payments to suppliers longer but improved payment timeliness in later periods, potentially affecting supplier relations and cash flow management strategies.

Cash Conversion Cycle

The cash conversion cycle, which represents the net time between cash outflow and inflow, varied across quarters with an overall increasing trend initially, rising from 57 days at the end of 2014 to a maximum of 84 days in mid-2017. After this peak, the cycle generally contracted, fluctuating between 59 and 73 days into early 2020. This pattern indicates changing efficiency in working capital management, with periods indicating both lengthened and shortened cycles of cash flow tied to operating activities.