Estée Lauder Cos. Inc. (NYSE:EL)

The financial ratios and period metrics indicate several patterns and shifts in operational efficiency, liquidity management, and working capital cycles over the observed periods.

Inventory Turnover

The inventory turnover ratio shows a downward trend overall, declining from 1.76 in late 2018 to around 1.53 by mid-2023, with fluctuations in between. This suggests that inventory is being turned over less frequently over time, implying either increased inventory levels or slower sales.

Receivables Turnover

Receivables turnover exhibits significant variability but generally shows an improving trend in collection efficiency, increasing from 6.29 in late 2018 to peaks above 10 by mid-2023. This indicates faster collection of receivables and better management of credit terms in recent periods.

Payables Turnover

The payables turnover ratio has fluctuated within a narrow band, ranging roughly from 2.3 to 3.3. The ratio decreased notably around mid-2019 and mid-2021, indicating longer payment periods to suppliers during these times. More recently, the turnover has stabilized around 2.7 to 2.9, suggesting a moderate pace of supplier payments.

Working Capital Turnover

Working capital turnover showed a decrease starting from around 6.26 in late 2019 to about 2.54 in late 2020, reflecting less efficient use of working capital during this period. Subsequently, it recovered steadily, reaching around 5.49 by mid-2023, implying improved turnover of working capital.

Average Inventory Processing Period (Days)

The average inventory processing period has trended upward from about 194 days in late 2018 to peaks around 263 days in late 2022, indicating longer holding periods for inventory. This aligns with the declining inventory turnover ratio, suggesting slower movement of inventory items.

Average Receivable Collection Period (Days)

The days sales outstanding improved significantly, dropping from approximately 58 days in late 2018 to just over 30 days by mid-2023. There are short-term fluctuations, but the overall declining trend indicates an acceleration in the collection of receivables.

Operating Cycle (Days)

The operating cycle, comprising inventory and receivables periods, has varied but shows a mild increasing trend, rising from about 266 days in late 2018 to roughly 271 days by mid-2023, with a peak near 306 days in late 2022. This suggests that the combined duration of turning inventory into sales and collecting receivables has lengthened somewhat.

Average Payables Payment Period (Days)

The average payment period to suppliers increased from around 113 days in late 2018 to over 160 days in parts of 2021, indicating a strategic extension in payment delays. More recently, this period shortened somewhat, stabilizing between 120 and 135 days, which may reflect a moderation in supplier payment strategies.

Cash Conversion Cycle (Days)

The cash conversion cycle displays volatility, with values decreasing to about 100 days in mid-2019 and rising to a peak of approximately 185 days in late 2022 before declining to 137 days by mid-2023. This indicates fluctuating efficiency in cash flow conversion, where shorter cycles denote more rapid conversion of resources into cash and longer cycles indicate delayed cash recovery.

Overall, the data reflects a tendency toward slower inventory movement and lengthening operating cycles, counterbalanced by stronger receivables collection efforts. The company appears to have extended payables periods at times, possibly to improve liquidity. The recent recovery in working capital turnover and shortening of the cash conversion cycle suggests ongoing efforts to optimize operational cash flows and working capital management.

Cost of Sales

The cost of sales exhibits notable fluctuations over the observed periods. Initially, values range between approximately 800 and 1,000 million US dollars, with an upward trend towards late 2019, peaking at 1,084 million in December 2019. This peak is followed by a decline during the first half of 2020, reaching a low near 767 million in June 2020, likely reflecting reduced activity during that period. Subsequently, cost of sales demonstrates a recovery trend, increasing again and surpassing previous highs by the end of 2021, with a peak of 1,223 million in September 2021. The subsequent year shows generally stable but elevated costs, remaining above 1,000 million, although with some moderate decreases towards mid-2023.

Inventory and Promotional Merchandise

Inventory levels show a consistent upward trajectory throughout the quarters. Beginning at around 1,681 million in September 2018, inventory steadily increases each quarter, reaching over 3,000 million by late 2022 and early 2023. This near doubling of inventory levels suggests an expansion in stockholdings or a strategic buildup of merchandise. The increase appears relatively continuous without pronounced decreases, indicating sustained inventory accumulation over the period.

Inventory Turnover

The inventory turnover ratio demonstrates a gradual declining trend over the examined timeline. Starting at approximately 1.76 in late 2018, the ratio remains around this level with minor fluctuations until early 2019 but then shows a steady decrease from mid-2019 onwards, reaching lows near 1.39 by the end of 2022. There is a slight improvement in the most recent periods, rising to approximately 1.53 by mid-2023. This declining turnover ratio, in context with rising inventory levels, may suggest slower movement of goods or increased stock relative to sales, potentially indicating overstocking or decreased sales velocity during some periods.

The financial data over the observed periods reveals several noteworthy trends in the company's operational and receivables management performance.

Net Sales

Net sales exhibit a fluctuating pattern with identifiable periods of decline and recovery. Initial sales increased from 3,524 million USD in September 2018 to a peak of 4,624 million USD in December 2019. This was followed by a significant contraction coinciding with the early phases of 2020, which can be observed with a drop to a low of 2,430 million USD in June 2020.

Subsequent quarters show a recovery trend, culminating in a new peak of 5,539 million USD in December 2021. After this peak, sales experienced another decline in the first half of 2022 but stabilized somewhat by the end of 2022 and early 2023, with values ranging near the 3,600 to 4,600 million USD mark. The overall trajectory indicates sensitivity to external factors impacting sales, followed by resilience and recovery within less than a year.

Accounts Receivable, Net

The net accounts receivable balances demonstrate a variable trend with moderate correlation to sales activity. Starting at 2,214 million USD in September 2018, the balance decreased somewhat through early 2019 and then somewhat mirrored the decline in net sales in 2020, reaching a notable low of 1,194 million USD in June 2020.

Following this trough, the accounts receivable increased again, peaking at 2,265 million USD in September 2021 before experiencing another decline towards the mid-2023 period, matching the pattern of fluctuating sales.

This trend suggests active management of receivables in response to sales variability, with certain lag effects consistent with credit terms and collection practices.

Receivables Turnover

The receivables turnover ratio, which measures the efficiency of accounts receivable collection, indicates an overall improvement in collection efficacy over the periods. It climbed from 6.29x in September 2018 to a high of 11.97x in June 2020, reflecting faster collection possibly driven by tighter credit policies or improved cash collection practices during periods of lower sales.

After peaking in mid-2020, the ratio moderated but remained elevated relative to pre-pandemic levels, fluctuating between approximately 7.2x and 10.96x through mid-2023. This sustained higher turnover suggests a continued emphasis on efficient receivables management post-pandemic challenges.

In summary, the data illustrates a cyclical pattern in sales influenced by external conditions, accompanied by responsive management of receivables. Increased receivables turnover ratios during periods of sales decline imply stronger collection efforts, resulting in more efficient conversion of sales into cash. The overall trend points to adaptability in financial operations consistent with evolving market conditions.

Cost of Sales

The cost of sales exhibits variability throughout the periods. Initially, there is a general upward trend from September 2018 (823 million USD) to December 2019 (1084 million USD), suggesting increased production or sales volume. However, during the early months of 2020, a decline is observed, particularly in June 2020 (767 million USD), likely reflecting disruptions. Subsequently, the cost of sales recovers and rises steadily from December 2020 (1084 million USD) through to December 2021 (1223 million USD), before showing some stabilization and minor fluctuations into mid-2023, indicating a partial normalization of operations.

Accounts Payable

Accounts payable figures show an overall increasing pattern with some volatility. Starting from 913 million USD in September 2018, the balance climbs notably, reaching peaks above 1600 million USD in mid and late 2021 and again in mid-2022. Despite intermittent decreases, the figures do not revert to early period levels. This upward trend may reflect extended credit terms or increased purchasing activities aligned with business expansion or operational shifts.

Payables Turnover

The payables turnover ratio trends lower over time, moving from 3.24 ratio in September 2018 to values fluctuating near or below 2.7 in multiple recent quarters. This decline indicates slower payment cycles, as a lower turnover ratio implies the company is taking longer to settle its payables. The decrease is especially noticeable during periods coinciding with higher accounts payable balances, suggesting strategic management of cash flow or temporary liquidity considerations.

Overall Insights

The data reveals a company experiencing growth in cost of goods sold and accounts payable over the analyzed timeframe. The fluctuations, especially during 2020, likely correspond to external disruptions affecting operations. The increasing accounts payable alongside a decreasing payables turnover ratio suggests deliberate cash flow management, possibly extending payment terms. Together, these patterns highlight adjustments in operational scale and financial practices in response to evolving market conditions.

Working Capital

The working capital displayed fluctuations over the observed periods, with initial values around 2.7 billion USD in late 2018. It experienced an upward trend reaching a peak close to 5.8 billion USD by the end of 2020. Subsequently, it fluctuated but generally declined towards mid-2023, settling near 2.9 billion USD. This pattern indicates periods of increased liquidity and operational resources followed by contraction towards the latest quarters.

Net Sales

Net sales exhibited substantial variability across the periods. Starting from roughly 3.5 billion USD in September 2018, net sales increased to a high point of about 4.9 billion USD in December 2020. After this peak, sales figures oscillated and generally trended downward, recording about 3.6 billion USD by mid-2023. This pattern suggests cyclical performance with notable declines coinciding with certain intervals, potentially influenced by market conditions.

Working Capital Turnover

The working capital turnover ratio demonstrated an inverse relationship to the working capital figures. It began around a ratio of 5.2 in late 2018, dropped steadily, reaching its lowest values approximately between 2.5 and 2.9 during 2020 and early 2021, which coincides with the period of highest working capital. After early 2021, the ratio improved, rising again to above 5.4 by mid-2023. This indicates that the company became more efficient at generating sales from its working capital following the dip experienced during 2020.

Overall Analysis

The combined data suggest that the company managed its working capital more conservatively leading up to and during 2020, possibly in response to external challenges, resulting in a buildup of working capital but lower turnover efficiency. The recovery phase after 2020 saw a normalization of working capital levels paired with improved turnover ratios, signifying enhanced operational efficiency and better utilization of assets to generate sales. Net sales followed a cyclical pattern with peaks aligning with periods of lower working capital turnover and troughs coinciding with more efficient capital use. This dynamic reflects adaptive financial management in response to varying market and economic conditions throughout the periods analyzed.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates a modest decreasing trend over the presented period. Starting at 1.76 in September 2018, the ratio exhibits some fluctuations but gradually declines to lower values around 1.39 to 1.53 in 2023. Notably, there is a dip to a minimum near 1.39 in December 2022, with a mild recovery observed by mid-2023. This suggests a slowing rate of inventory turnover, indicative of either slower sales or increased inventory levels relative to cost of goods sold.

Average Inventory Processing Period

The average inventory processing period, measured in days, moves inversely to the inventory turnover ratio and shows an increasing trend over the entire span. Beginning at 208 days in September 2018, the duration lengthens progressively, peaking at 263 days by September 2022. Although a slight reduction to 238 days is noted by June 2023, overall the trend points toward longer inventory holding times. This increase implies potential challenges in inventory management or changes in sales pace, requiring the company to hold inventory for extended periods before it is sold.

Overall Insight

The concurrent decrease in inventory turnover and increase in average inventory processing period suggest a gradual reduction in inventory efficiency over the analyzed timeframe. This pattern could impact working capital management and may require strategic adjustments to optimize inventory levels or sales processes to improve liquidity and operational effectiveness.

The analysis of the receivables turnover and average receivable collection period over multiple quarters reveals distinct patterns in the company's management of accounts receivable.

Receivables Turnover

The ratio shows variability with an overall upward trend in some periods, indicating changes in how efficiently the company collects receivables. Notably, turnover peaks significantly in Jun 2020 (11.97) and again in Jun 2023 (10.96), suggesting periods of increased efficiency in receivable collections. Conversely, there are dips around Sep 2019 and Sep 2021 to approximately the mid-6 to mid-7 range, reflecting slower turnover during those times.

Overall, the data suggests a cyclic pattern with periods of rapid collection followed by phases of slower turnover, but with a general improvement in turnover ratios towards the later quarters analyzed.

Average Receivable Collection Period

This metric inversely mirrors the receivables turnover ratio, showing the number of days, on average, it takes to collect receivables. The collection period decreases notably during peaks in turnover, such as a reduction to 30 days in Jun 2020 and to 33 days in Jun 2023, indicating more rapid cash conversion during these periods.

Periods of increased collection days, such as 58 days in Sep 2018 and 55 days in Sep 2019, correspond with lower turnover ratios, confirming the inverse relationship. The average collection days trend downward over time, with some fluctuations, suggesting improving efficiency in managing accounts receivable.

In summary, the data demonstrates improved efficiency in receivable management over the analyzed timeframe, characterized by shorter collection periods and higher turnover ratios in recent quarters. The pattern indicates effective cash flow management during certain quarters, although periodic decreases highlight some variability in collection efficiency.

Average Inventory Processing Period

The average inventory processing period shows a fluctuating yet generally increasing trend over the observed timeframe. Initially, it declined slightly from 208 days in September 2018 to 194 days by December 2018. Subsequently, it exhibits intermittent rises and falls, peaking at 263 days in September 2022 before experiencing a moderate decrease to 238 days by June 2023. This pattern suggests periods of slower inventory turnover, particularly noticeable from mid-2021 to late 2022, indicating potential challenges in inventory management or changes in demand dynamics during that period.

Average Receivable Collection Period

The average receivable collection period displays considerable variability but a general tendency towards improvement over time. It decreases from 58 days in September 2018 to a low of 30 days by June 2020, reflecting enhanced efficiency in collections. After this point, the period experiences fluctuations between approximately 33 to 49 days, with no clear long-term upward or downward trend, and finishing at 33 days in June 2023. This suggests the company has maintained a generally effective receivables collection process with some cyclical variations.

Operating Cycle

The operating cycle shows an overall upward trajectory over the analyzed period. Beginning at 266 days in September 2018, it reaches a high of 306 days in September 2022 before reducing to 271 days by June 2023. This increase is primarily driven by the lengthening of the inventory processing period, partially offset by shorter receivable collection periods at times. The prolonged operating cycle signals that the company’s cash conversion process took longer in recent years, potentially impacting liquidity or working capital requirements.

Payables Turnover

The payables turnover ratio exhibits some fluctuation over the observed periods, ranging from a high near 3.24 to a low around 2.27. Initial values start at approximately 3.24 in late 2018, showing a gradual decline into mid-2019 where the turnover reaches 2.27, indicating slower payment cycles. Thereafter, a mild recovery occurs with values mostly oscillating between 2.7 and 3.1 through the subsequent years. Notably, around mid-2021, the ratio dips again to approximately 2.27 before rebounding towards the end of 2022 and early 2023, stabilizing near the upper end of the range around 2.9. Overall, the trend suggests variability in the speed at which payables are settled, with periods of slower payments interspersed with phases of relatively quicker payables turnover.

Average Payables Payment Period

The average payables payment period, expressed in days, shows an inverse trend to the payables turnover ratio, as expected. Starting from around 113 days in late 2018, the period lengthens substantially to 161 days by mid-2019, indicating a slower conversion of payables into cash outflows. This prolonged period remains elevated sporadically in later periods, with peaks again at 161 days by mid-2021 and 154 days in mid-2022. The earliest and latest values tend to hover between 113 and 135 days, suggesting some normalization after spikes. The data reflects intermittent delays in settling payables, possibly due to strategic payment scheduling or operational factors affecting cash flow management.

Insights

The opposing movements of the payables turnover ratio and the average payment period are consistent with typical financial behavior, where slower payment cycles reduce turnover ratios. The observed oscillations may reflect seasonal business patterns, shifts in supplier payment terms, or adjustments in working capital management. Periods of increased payment days could improve short-term liquidity but might impact supplier relationships. Conversely, times of faster payables turnover may indicate improved cash utilization or changing operational dynamics. The data points to a pattern of fluctuating liquidity and payment policies rather than a consistent trend in either direction.

Inventory Processing Period

The average inventory processing period shows a generally increasing trend over the analyzed timeframe, starting from 208 days and reaching a peak of 263 days. The period fluctuates throughout, with some decreases noted during late 2020 and mid-2023, but the overall direction indicates a lengthening duration for inventory turnover.

Receivable Collection Period

The average receivable collection period displays moderate volatility but an overall declining tendency. It starts at 58 days and decreases to the low 30s toward the most recent quarters. This suggests an improvement in the efficiency of collecting receivables, resulting in quicker conversions of sales to cash.

Payables Payment Period

The payables payment period experiences fluctuations throughout the periods, starting at 113 days and showing several peaks, notably around 161 days in mid-2019 and mid-2021. The trend does not display a clear directional change but suggests periods during which the company delayed payments, potentially for cash management purposes.

Cash Conversion Cycle

The cash conversion cycle exhibits substantial variability, oscillating over the periods analyzed. It begins around 153 days, dips to a low near 100 days in mid-2019, then rises again, reaching highs around 185 days in late 2022. The recent trend shows some reduction, ending near 137 days mid-2023. This pattern indicates fluctuating efficiency in managing the time between outlay of cash and receipt from sales.

Summary

Overall, the company shows a lengthening inventory processing period, which may imply slower inventory turnover or increasing stock levels. Simultaneously, it improves on receivable collection efficiency by reducing the number of days to collect payments. Payables payment periods vary without a steady trend, suggesting reactive management of payment timing. The cash conversion cycle's variability indicates periodic shifts in operational efficiency and working capital management, with improvements in receivables partially offset by inventory and payables trends.