Freeport-McMoRan Inc. (NYSE:FCX)

The analysis of key turnover and cycle metrics over the five-year period reveals several noteworthy trends in operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio experienced moderate fluctuations, starting at 2.99 in 2020, peaking slightly at 3.12 in 2021, then gradually declining to around 2.61 by 2024. This trend indicates a slight decrease in the frequency at which inventory is sold and replenished, possibly implying slower inventory movement or increased stock levels in recent years.

Receivables Turnover

Receivables turnover showed a strong upward trend, increasing from 15.92 in 2020 to a significant peak of 44.04 in 2024. This suggests a substantial improvement in the company's efficiency in collecting receivables, with customers paying more quickly or tighter credit policies resulting in faster cash inflows.

Payables Turnover

The payables turnover ratio declined from 7.91 in 2020 to a low of 5.59 in 2022, then recovered slightly to around 6.38 in 2024. This indicates an initial lengthening of the payment period to suppliers followed by a modest reduction, reflecting potential changes in supplier payment strategies or cash flow management.

Working Capital Turnover

The working capital turnover ratio exhibited a generally positive trend, increasing from 2.41 in 2020 to 3.26 in 2024. This suggests improved effectiveness in utilizing working capital to generate revenue over the period.

Average Inventory Processing Period

The average time inventory is held increased from 122 days in 2020 to a peak of 141 days in 2023, then slightly decreased to 140 days in 2024. This aligns with the decline in inventory turnover, indicating longer inventory holding periods and potentially slower stock movement.

Average Receivable Collection Period

The collection period decreased notably from 23 days in 2020 to just 8 days by 2024, mirroring the strong rise in receivables turnover. This reflects significant improvement in cash conversion related to receivables.

Operating Cycle

The operating cycle increased from 145 days in 2020 to a peak of 160 days in 2023 before declining slightly to 148 days in 2024. The temporary lengthening suggests slower overall operating activities due to higher inventory days offset by faster receivables collection.

Average Payables Payment Period

The average period to pay suppliers lengthened from 46 days in 2020 to 65 days in 2022, then shortened to 57 days through 2023 and 2024. This indicates a strategy of managing cash outflows more flexibly, initially extending payment terms before partially reducing them.

Cash Conversion Cycle

The cash conversion cycle decreased from 99 days in 2020 to 81 days in 2022, then increased to 103 days in 2023 and declined again to 91 days in 2024. This volatility indicates variations in the overall efficiency of converting investments in inventory and receivables into cash, affected by the interplay of inventory, receivables, and payables periods.

Cost of sales

The cost of sales exhibited an increasing trend over the five-year period. It rose from $11,655 million in 2020 to $17,795 million in 2024, reflecting a consistent growth each year. The most substantial annual increase occurred between 2023 and 2024, indicating a notable escalation in costs during this period.

Inventories

Inventories also showed a continuous upward trend, increasing from $3,893 million in 2020 to $6,808 million in 2024. The inventory levels grew steadily each year, with particularly significant increments between 2022 and 2024, which may suggest an accumulation of stock or strategic buildup of inventory.

Inventory turnover

The inventory turnover ratio demonstrated a declining pattern over the analyzed period. Starting at 2.99 in 2020, the ratio increased slightly to 3.12 in 2021 but then decreased progressively to 2.61 in 2024. This downward trend signals that the company is turning over its inventory less frequently year over year, which could imply slower sales or higher inventory holding relative to the cost of sales.

Summary of trends

Overall, the data indicate rising costs and inventory levels alongside a decreasing pace of inventory turnover. This combination could reflect growing operational scale but also raises potential concerns regarding inventory management efficiency. The increase in cost of sales outpacing inventory turnover suggests that the company might need to focus on improving inventory utilization or managing production costs to sustain profitability in the future.

Revenues

The revenues showed a significant increase from 2020 to 2021, rising from 14,198 million US dollars to 22,845 million US dollars. In 2022 and 2023, the revenues remained relatively stable around 22,780 million and 22,855 million US dollars respectively, indicating a plateau in growth during those years. However, in 2024, revenues increased notably again to 25,455 million US dollars, suggesting a renewed upward trend.

Trade accounts receivable

Trade accounts receivable consistently increased from 2020 to 2022, moving from 892 million US dollars to 1,336 million US dollars. In 2023, there was a slight decrease to 1,209 million US dollars, followed by a substantial decline to 578 million US dollars in 2024. This sharp reduction in 2024 may suggest improved collection efficiency or changes in credit policies.

Receivables turnover

The receivables turnover ratio rose from 15.92 in 2020 to 19.56 in 2021, indicating faster collection of receivables during that period. It then declined to 17.05 in 2022 before increasing again to 18.9 in 2023. A significant jump to 44.04 in 2024 suggests a dramatic improvement in the company's ability to collect receivables, which aligns with the observed decrease in trade accounts receivable in the same year.

Cost of Sales

The cost of sales exhibits a clear upward trajectory over the five-year period. Starting at 11,655 million US dollars in 2020, it increases steadily each year, reaching 17,795 million US dollars by the end of 2024. This represents a significant rise, indicating either growth in production volume, increases in input costs, or both. The rate of increase appears consistent with no sharp fluctuations, suggesting gradual escalation in operational costs.

Accounts Payable

Accounts payable also demonstrate an overall increasing trend from 1,473 million US dollars in 2020 to 2,789 million US dollars in 2024. The increase is generally steady; however, there is a slight dip observed in 2023 where accounts payable decrease from 2,701 million in 2022 to 2,466 million. This could indicate changes in payment policies or supplier negotiations during that year. The subsequent rebound in 2024 shows a return to the upward trend.

Payables Turnover Ratio

The payables turnover ratio reveals a declining trend from 7.91 in 2020 to a low of 5.59 in 2022, implying a lengthening of the average payment period to suppliers. After 2022, the ratio increases slightly to 6.36 in 2023 and remains almost stable at 6.38 in 2024. This suggests some improvement in payment efficiency after 2022 but still not reaching the quicker turnover indicated by earlier years. Overall, the data may reflect changes in the company's cash management or supplier terms.

Summary Insights

Over the observed period, the company’s operational expenses, as indicated by cost of sales, have risen consistently. Accounts payable align with this pattern, increasing generally in proportion to the cost of sales, albeit with a minor fluctuation in 2023. The payables turnover ratio indicates a trend toward longer payment cycles initially, followed by a slight recovery. This combination may suggest that while operational costs are increasing, the company experienced changes in working capital management, potentially aiming to optimize cash flow through extended payment terms after 2020, then attempting to normalize these terms post-2022.

Working Capital

The working capital exhibited an overall upward trend from 2020 to 2022, increasing from $5,886 million to $9,268 million, indicating improved short-term liquidity during this period. However, in 2023 and 2024, working capital decreased to $8,250 million and further to $7,800 million respectively, suggesting a tightening in liquidity or more efficient use of current assets and liabilities.

Revenues

Revenues demonstrated significant growth over the five-year period. Starting at $14,198 million in 2020, revenues rose sharply to $22,845 million in 2021, and then remained relatively stable around that level through 2023. In 2024, revenues increased again to $25,455 million, indicating strong sales growth and potentially improved market conditions or operational performance.

Working Capital Turnover

The working capital turnover ratio showed a consistent upward trajectory from 2.41 in 2020 to 3.26 in 2024. This suggests increasing efficiency in utilizing working capital to generate revenues. The ratio's rise, especially the sharper increase from 2.77 in 2023 to 3.26 in 2024, reflects enhanced management of working capital or improved revenue generation relative to the working capital base.

Overall Analysis

The data indicates a company that achieved significant revenue growth with partially volatile working capital levels in recent years. The declining working capital in 2023 and 2024, coupled with increasing working capital turnover, suggests a strategic emphasis on improving capital efficiency. The sustained revenue increases reinforce that the company managed to enhance sales performance while optimizing the use of its working capital resources. This pattern points to an effective operational approach focused on balancing liquidity and growth.

The annual financial data indicates notable trends in inventory management over the five-year period. The inventory turnover ratio exhibits a decline from 2.99 in 2020 to 2.61 in 2024, with a peak at 3.12 recorded in 2021. This downward trajectory suggests a gradual reduction in the frequency with which inventory is sold and replenished over time.

Corresponding to the inventory turnover ratio, the average inventory processing period, expressed in days, shows an increasing trend. The number of days increased from 122 in 2020 to 140 in 2024, with fluctuations in between, reaching a maximum of 141 days in 2023. This implies that inventory remains on hand for a longer duration before being processed or sold.

Inventory turnover ratio

Initially increases from 2.99 in 2020 to 3.12 in 2021, followed by a consistent decrease through 2024, ending at 2.61.

Average inventory processing period

Decreases slightly from 122 days in 2020 to 117 days in 2021, then steadily increases through 2024, peaking at 141 days in 2023.

The inverse relationship between inventory turnover and processing period aligns logically; as inventory turnover slows, the processing period typically lengthens, indicating potential challenges in inventory management efficiency or shifts in demand patterns. Such trends may warrant further evaluation to optimize inventory levels and improve operational efficiency.

Receivables Turnover

The receivables turnover ratio demonstrates an increasing trend overall, rising from 15.92 in 2020 to a significantly higher level of 44.04 by the end of 2024. Although there was a dip in 2022 to 17.05 following a peak of 19.56 in 2021, the ratio recovered in 2023 to 18.9 and then surged substantially in 2024. This indicates an improvement in the company's efficiency in collecting its receivables, with accelerated turnover of accounts receivable in the later years.

Average Receivable Collection Period

The average collection period, measured in days, mirrors the behavior of the receivables turnover but in inverse form, consistent with the mathematical relationship between these metrics. The period decreased from 23 days in 2020 to 8 days in 2024, highlighting a steady improvement in the speed of cash collection from customers. Notably, there was a slight fluctuation between 2021 and 2022, where the period increased from 19 days to 21 days, but it then reverted to 19 days in 2023 before sharply declining in 2024. The reduction to just 8 days in 2024 suggests a highly efficient receivables management process in that year.

Overall Analysis

Collectively, these trends reflect a strengthening in receivables management efficiency. The company has generally improved its ability to convert receivables into cash more quickly over the five-year period. The marked improvement in 2024 is particularly noteworthy and could point to changes in credit policies, customer payment behavior, or improved collection efforts. The temporal fluctuations in 2021 through 2023 suggest some variability but the overall direction is positive, implying enhanced liquidity and potentially better cash flow management.

The financial data over the five-year period reveals distinct trends in the company's inventory management, receivables collection, and overall operating cycle.

Average Inventory Processing Period

The average inventory processing period shows an initial slight decline from 122 days in 2020 to 117 days in 2021. However, there is a noticeable increase in the following years, reaching 125 days in 2022, peaking at 141 days in 2023, and then stabilizing slightly at 140 days in 2024. This indicates a gradual lengthening of the time taken to process inventory, suggesting potential challenges in inventory turnover or changes in inventory management strategy.

Average Receivable Collection Period

The average receivable collection period demonstrates a general downward trend, decreasing from 23 days in 2020 to 19 days in 2021, with a slight increase to 21 days in 2022. It then decreases again to 19 days in 2023 and sharply drops to 8 days in 2024. The marked reduction in 2024 indicates improved efficiency in collecting receivables, potentially enhancing cash flow and reducing credit risk.

Operating Cycle

The operating cycle, which combines the inventory processing and receivables collection periods, reflects an initial decline from 145 days in 2020 to 136 days in 2021. It then ascends to 146 days in 2022 and further increases to 160 days in 2023 before moderating to 148 days in 2024. Despite the improvements in receivables collection, the lengthening inventory processing period appears to have a stronger influence, resulting in a generally longer operating cycle toward the latter years.

Overall, the data suggests that while receivables management has become more efficient, inventory turnover has slowed, extending the operating cycle. This could imply a need for the company to focus on improving inventory practices to optimize working capital management.

The analysis of the financial data for the payables turnover and average payables payment period reveals several notable trends over the five-year period ending December 31, 2024.

Payables Turnover

The payables turnover ratio shows a declining trend from 7.91 in 2020 to 5.59 in 2022, indicating the company took longer to pay its suppliers during this period. Following this decline, there is a slight improvement in 2023 and 2024, with ratios increasing to 6.36 and 6.38 respectively, yet still remaining below the 2020 level. This pattern suggests a period of extended payment terms or slower payments, followed by efforts to improve payment efficiency in more recent years.

Average Payables Payment Period

Conversely, the average payables payment period, measured in days, increased from 46 days in 2020 to a peak of 65 days in 2022, aligning with the decrease in payables turnover. From 2022 onwards, this period shortened to 57 days by 2023 and remained stable into 2024. This indicates that the company initially allowed more extended periods to settle payables but later reduced the payment duration to improve cash flow management or supplier relationships.

Overall, the data depict a shift in the company's payment behavior, with a trend toward longer payment periods between 2020 and 2022, followed by a partial reversal and stabilization from 2023 to 2024. This could reflect changes in working capital management strategy or external economic factors influencing creditor payment terms.

Average inventory processing period

The average inventory processing period shows a generally increasing trend over the observed years, rising from 122 days in 2020 to a peak of 141 days in 2023, followed by a slight decrease to 140 days in 2024. This indicates that the time taken to process inventory has lengthened over the period, suggesting potential challenges in inventory turnover or changes in inventory management practices.

Average receivable collection period

This metric exhibits variability with an overall declining trend, decreasing from 23 days in 2020 to 8 days in 2024. The most notable drop is observed between 2023 and 2024, where the period decreases from 19 days to 8 days. This improvement implies enhanced efficiency in collecting receivables, which positively affects the company's cash flow management.

Average payables payment period

The average payables payment period initially increases from 46 days in 2020 to a peak of 65 days in 2022, indicating that the company extended the time taken to settle its payables. Subsequently, it decreases to 57 days in both 2023 and 2024, suggesting a partial reversal toward quicker payments compared to the 2022 peak but still longer than the 2020 baseline. This pattern may reflect shifts in supplier payment strategies or negotiating power.

Cash conversion cycle

The cash conversion cycle fluctuates moderately throughout the timeframe, starting at 99 days in 2020, decreasing to 81 days in 2022, then increasing significantly to 103 days in 2023 before declining again to 91 days in 2024. The overall trend indicates variability in the net days taken to convert investments in inventory and receivables into cash, influenced by the opposing dynamics of inventory processing and receivables collection periods. The spike in 2023 points to a temporary extension in the cash conversion process, which subsequently improved in 2024.