Generac Holdings Inc. (NYSE:GNRC)

The analysis reveals distinct trends in the company's operational efficiency and working capital management over the five-year period.

Inventory Turnover

There is a general decline in inventory turnover from 2.87 in 2017 to 2.18 in 2021, suggesting a slower movement of inventory and potentially increased holding of stock.

Receivables Turnover

The receivables turnover ratio shows an overall improvement, rising from 5.97 in 2017 to 6.84 in 2021, indicating faster collection of receivables and better credit management.

Payables Turnover

The payables turnover fluctuates, peaking at 5.37 in 2019 but decreasing to 3.53 by 2021, implying a lengthening in the period taken to pay suppliers over the latter years.

Working Capital Turnover

This ratio declines from 3.89 in 2017 to 2.42 in 2020 but significantly increases to 5.4 in 2021. This indicates a substantial improvement in generating revenue from working capital in the most recent year.

Average Inventory Processing Period

The average number of days to process inventory increases overall, from 127 days in 2017 to 167 days in 2021, supporting the observation of slower inventory turnover.

Average Receivable Collection Period

The collection period for receivables decreases from 61 days in 2017 to 53 days in 2021, reflecting enhanced efficiency in collecting outstanding payments.

Operating Cycle

The operating cycle experiences fluctuations but trends upward from 188 days in 2017 to 220 days in 2021, indicating a longer duration between inventory acquisition and cash collection from sales.

Average Payables Payment Period

There is an increase in the days taken to pay suppliers, from 78 days in 2017 to 104 days in 2021, which may contribute to improved liquidity or extended credit terms with suppliers.

Cash Conversion Cycle

The cash conversion cycle remains relatively stable around 110 to 120 days during the years 2017 to 2020, with a slight decrease to 116 days in 2021, indicating a consistent effectiveness in managing the time between cash outflow and inflow.

Overall, the data indicate an increased focus on accelerating receivables and extending payables, while inventory turnover shows signs of slowing. The substantial rise in working capital turnover in 2021 suggests a marked improvement in utilizing current assets to generate revenue during that year.

The analysis of the financial data reveals notable trends over the five-year period from 2017 to 2021 related to costs of goods sold (COGS), inventories, and inventory turnover ratio.

Costs of Goods Sold (COGS)

There is a consistent increase in costs of goods sold from 2017 through 2021. The COGS rose from approximately $1.09 billion in 2017 to about $2.38 billion in 2021, exhibiting significant growth particularly in the final year where the increase was markedly steep compared to prior increments. This points to expanding sales volumes or rising input costs, or a combination thereof.

Inventories

Inventories grew substantially during the period examined. Beginning at $380.3 million in 2017, inventory levels climbed steadily to $1.09 billion by the end of 2021. The growth was relatively gradual until 2020, but a sharp increase occurred in 2021, similar to the pattern observed with COGS. This increase in inventory might indicate preparation for higher sales demand or inefficient inventory management.

Inventory Turnover Ratio

The inventory turnover ratio presents a declining trend, decreasing from 2.87 times in 2017 to 2.18 times in 2021. This downward movement suggests that the company is turning over its inventory less frequently over time. The decrease in turnover ratio may reflect slower sales relative to inventory levels or increased stock holding periods, which could impact liquidity and operational efficiency.

In summary, the company experienced increasing costs of goods sold and rising inventory levels over the five years, accompanied by a declining inventory turnover ratio. The acceleration in inventory and COGS growth in 2021, coupled with a reduced turnover rate, suggests potential challenges in managing inventory efficiently or shifts in sales dynamics, warranting further investigation into supply chain and demand planning processes.

The financial data reveals significant growth and operational trends over the five-year period ending December 31, 2021.

Net Sales

Net sales show a consistent upward trend, increasing from $1,672,445 thousand in 2017 to $3,737,184 thousand in 2021. This represents more than a twofold increase in revenue over the period, with the most substantial jump occurring between 2020 and 2021, where net sales rose by approximately 50.4%. This growth indicates an expanding market presence or enhanced sales capabilities.

Accounts Receivable, Net of Allowance for Credit Losses

The accounts receivable balance also increased substantially, from $280,002 thousand in 2017 to $546,466 thousand in 2021. This increase aligns with the growth in net sales, reflecting higher sales volumes on credit. The accounts receivable nearly doubled over five years, indicating the company has extended more credit to customers or experienced longer collection periods.

Receivables Turnover Ratio

The receivables turnover ratio generally improved from 5.97 in 2017 to 6.84 in 2021, indicating a slight increase in efficiency in collecting receivables. The ratio peaked at 6.9 in 2019, followed by a minor drop to 6.63 in 2020, but recovered slightly in 2021. This suggests that despite the growth in accounts receivable, the company has maintained or even improved its effectiveness in managing credit and collections relative to sales.

Overall, the data suggests robust revenue expansion accompanied by a proportional increase in accounts receivable. The relatively stable and slightly improving receivables turnover ratio indicates effective credit management and collection processes amid growing sales volumes.

Costs of Goods Sold

The costs of goods sold exhibited a consistent upward trend over the five-year period. Beginning at approximately 1.09 billion USD in 2017, the cost increased each year, reaching about 2.38 billion USD by the end of 2021. The most notable surge occurred between 2020 and 2021, where costs rose sharply by over 55%, indicating possible increases in production volume, material costs, or operational expenses during that period.

Accounts Payable

Accounts payable also showed growth but with more fluctuations. Starting at roughly 234 million USD in 2017, the value increased to a peak of 328 million USD in 2018, then slightly declined in 2019 to around 262 million USD. Following this dip, the figure rose again significantly, reaching approximately 674 million USD by the end of 2021, which more than doubled the 2017 amount. This suggests an expansion in outstanding supplier payments, possibly reflecting higher procurement or extended payment terms.

Payables Turnover Ratio

The payables turnover ratio fluctuated over the reviewed years. It began at 4.67 in 2017, decreased to 3.96 in 2018, peaked at 5.37 in 2019, then declined again to 4.63 in 2020, and finally fell to 3.53 in 2021. The ratio's volatility indicates varying efficiency in managing payables. The decrease in 2021, concurrent with the large rise in accounts payable, may suggest slower payment cycles or changes in credit terms with suppliers.

Working Capital

Working capital exhibited a generally increasing trend from 2017 to 2020, rising from approximately 430 million USD in 2017 to over 1 billion USD in 2020. However, in 2021, working capital decreased significantly to around 693 million USD.

Net Sales

Net sales showed consistent growth over the entire period. Starting at roughly 1.67 billion USD in 2017, net sales increased each year, reaching approximately 3.74 billion USD in 2021. The most pronounced increase occurred between 2020 and 2021.

Working Capital Turnover

The working capital turnover ratio declined steadily from 3.89 in 2017 to 2.42 in 2020, indicating slower sales generation relative to working capital invested. In 2021, there was a sharp rise to 5.4, suggesting that despite a lower working capital base, the company generated substantially higher sales.

Overall Analysis

The data reflects an expansion phase with increased sales and working capital until 2020, followed by a strategic reduction in working capital in 2021 combined with accelerated sales growth. The significant increase in working capital turnover in 2021 indicates improved efficiency in using working capital to generate sales. The decline in working capital alongside growth in sales may suggest better inventory management, receivables collection, or other operational improvements leading to enhanced liquidity and asset utilization.

Inventory Turnover

The inventory turnover ratio exhibits a declining trend from 2017 to 2021. It decreased from 2.87 in 2017 to 2.18 in 2021, indicating a reduction in the frequency with which inventory is sold and replaced over the years.

Average Inventory Processing Period

The average inventory processing period shows an increasing trend during the same period. Beginning at 127 days in 2017, it rose to 167 days in 2021, reflecting longer durations on average before inventory is sold or used.

Overall Analysis

The simultaneous decrease in inventory turnover and increase in the average inventory processing period suggest that inventory management efficiency has weakened over the analyzed timeframe. The company appears to be holding onto inventory for extended periods, which may impact working capital and operational efficiency.

Receivables Turnover

The receivables turnover ratio demonstrates a generally increasing trend over the five-year period. Starting at 5.97 in 2017, the ratio gradually rises to 6.2 in 2018, then further improves to 6.9 in 2019. Although there is a slight dip to 6.63 in 2020, the ratio rebounds to 6.84 by the end of 2021. This pattern indicates an overall enhancement in the efficiency of the company's processes for collecting receivables during these years.

Average Receivable Collection Period

The average receivable collection period exhibits a decreasing trend, reflecting an improvement in the speed of converting receivables into cash. Beginning at 61 days in 2017, the period shortens to 59 days in 2018 and further declines notably to 53 days in 2019. There is a minor increase to 55 days in 2020, but the period decreases again to 53 days by 2021. This decrease, in line with the increase in receivables turnover, suggests more efficient credit management and collection practices.

Average inventory processing period

The average inventory processing period demonstrated a fluctuating yet overall increasing trend over the years under review. Starting at 127 days in 2017, it rose sharply to 153 days in 2018, then declined to 135 days in 2019. However, subsequent years saw a renewed increase, reaching 144 days in 2020 and peaking at 167 days in 2021. This suggests a lengthening duration for inventory turnover, which could indicate slower inventory movement or accumulation of stock over time.

Average receivable collection period

The average receivable collection period showed a mild decreasing trend from 61 days in 2017 to 53 days in 2021. After an initial slight decline to 59 days in 2018 and further reductions to 53 days in 2019, there was a minor increase to 55 days in 2020, followed by a return to 53 days in 2021. This illustrates a general improvement in the efficiency of receivables collection, with minor year-to-year variability.

Operating cycle

The operating cycle experienced an overall increasing pattern during the period analyzed. It began at 188 days in 2017, rose substantially to 212 days in 2018, then fell back to 188 days in 2019. From 2019 onwards, the operating cycle lengthened progressively to 199 days in 2020 and reached 220 days in 2021. This increase is primarily influenced by the lengthening inventory processing period, indicating a longer total cash conversion cycle and potential impact on working capital management.

The payables turnover ratio and average payables payment period exhibit fluctuating patterns over the five-year period ending in 2021.

Payables Turnover Ratio

The ratio started at 4.67 in 2017, decreased to 3.96 in 2018, rose significantly to 5.37 in 2019, then decreased again to 4.63 in 2020, and finally dropped further to 3.53 in 2021. This indicates variability in how frequently the company paid off its suppliers, with a peak efficiency in 2019 followed by a marked decline by 2021.

Average Payables Payment Period (Days)

The payment period exhibits an inverse trend relative to the turnover ratio. It was 78 days in 2017, increased to 92 days in 2018, then shortened significantly to 68 days in 2019. It lengthened again to 79 days in 2020 and extended further to 104 days in 2021. The rising payment period in the later years suggests the company took longer to settle its payables, with the longest period observed in 2021.

Overall, the data suggests that after achieving a higher payables turnover and a shorter payment period in 2019, the company’s payment efficiency declined in subsequent years, potentially reflecting changes in payment policies, liquidity management, or supplier terms that resulted in slower payments. The increase in the average payment period to over 100 days by 2021 highlights a significant extension in the time taken to pay suppliers.

Average Inventory Processing Period

The average inventory processing period shows an overall increasing trend from 127 days in 2017 to 167 days in 2021, indicating that the time taken to process inventory has lengthened by 40 days over the five-year span. This suggests a slower turnover of inventory, which may imply challenges in inventory management or changes in demand patterns.

Average Receivable Collection Period

The average receivable collection period exhibits a slight downward trend, decreasing from 61 days in 2017 to 53 days in 2021, with a minor fluctuation in 2020. This improvement indicates enhanced efficiency in collecting receivables, which can positively impact cash flow management.

Average Payables Payment Period

The average payables payment period demonstrates variability with an overall increase from 78 days in 2017 to 104 days in 2021. Notably, there was a dip in 2019 to 68 days, but the subsequent years show an increasing trend, which may reflect longer payment terms negotiated with suppliers or delayed payments to conserve cash.

Cash Conversion Cycle

The cash conversion cycle remains relatively stable, fluctuating narrowly between 110 and 120 days from 2017 to 2020, and slightly decreasing to 116 days in 2021. Despite changes in inventory and payables periods, the overall cycle duration shows minimal variation, indicating a consistent cash flow conversion timeframe over the years.