Generac Holdings Inc. (NYSE:GNRC)

The financial ratios and related metrics exhibit notable trends over the observed periods, reflecting changes in operational efficiency and liquidity management.

Inventory Turnover

The inventory turnover ratio shows a generally slight downward trend from 2.87 in early 2018 to 2.16 by late 2021, indicating a slower rate of inventory movement over time. This is supported by the increase in the average inventory processing period, which rose from 127 days in early 2018 to a peak of 169 days in late 2021, implying that inventory is being held for longer durations before sale.

Receivables Turnover

This ratio fluctuates moderately but maintains a relatively stable range around an average of approximately 6.5 throughout the periods, with occasional peaks like 7.36 in mid-2019 and troughs near 5.7 in late 2017. Correspondingly, the average receivable collection period remains fairly consistent, hovering mostly around the mid-50s in days, signifying steady collections efficiency.

Payables Turnover

Payables turnover shows more variability, starting from 4.67 and reaching notable highs such as 6.05 in mid-2020, before declining again to values around 3.5 in late 2021 and mid-2022. The average payables payment period reflects this variation inversely, increasing from 78 days to a peak near 105 days in late 2021, then decreasing to 77 days by mid-2022. This suggests fluctuations in the company's payment deferral practices to suppliers.

Working Capital Turnover

The working capital turnover ratio experienced a general decline from approximately 3.89 in early 2018 to a low near 2.42 in late 2020, indicating lower efficiency in using working capital to generate revenues during that time. Subsequently, there is a noticeable rebound peaking at 5.4 in late 2021, followed by a decrease to 3.36 by mid-2022. Such fluctuations point to varying management effectiveness and possible operational adjustments in working capital deployment.

Operating Cycle

The operating cycle measured in days shows an overall lengthening trend from 188 days in early 2018 to a maximum of 224 days in late 2021, before a slight decline. This lengthening indicates that the total time taken from inventory acquisition through receivables collection has increased, signaling potentially slower operational throughput and cash flow implications.

Cash Conversion Cycle

The cash conversion cycle also experiences an upward shift, ranging from around 110 days early in 2018 to a peak of 140 days in mid-2019, and maintaining elevated levels thereafter, with values oscillating around 120 to 135 days into mid-2022. The rise in this metric suggests an increase in the time lag between cash outflows and inflows, which could impact liquidity and working capital financing needs.

In summary, the data suggests that over the examined periods, the company encountered increasing durations in inventory holding and cash conversion cycles, pointing to potentially reduced operational efficiency and liquidity pressures. While receivables turnover and collection periods remain fairly stable, variations in payables management and working capital turnover ratios reflect adjustments in credit terms and working capital utilization. These trends collectively highlight important areas for potential operational focus to optimize the company’s asset and liability management.

Costs of Goods Sold

The costs of goods sold demonstrated a generally increasing trend over the observed quarterly periods from March 31, 2017, through June 30, 2022. Initial costs around $221 million rose consistently, with occasional quarterly fluctuations, reaching over $834 million by mid-2022. Notable substantial increases occurred particularly from mid-2020 onwards, reflecting heightened cost levels likely associated with growth or inflationary pressures.

Inventories

Inventories showed a steady upward trend throughout the period, growing from approximately $391 million at the beginning of 2017 to over $1.24 billion by June 2022. The increase has been relatively consistent, with only minor quarter-to-quarter variations, suggesting sustained inventory accumulation possibly aligned with expanding stock to support increased sales or production demand.

Inventory Turnover Ratio

The inventory turnover ratio, available from the first quarter of 2018, exhibited some variability but a general declining trend. Initially, the ratio was around 2.87, then gradually decreased to levels below 2.20 by 2021 and mid-2022. This suggests a reduction in the frequency with which inventory was sold and replenished, indicating either slower inventory movement or increased inventory holdings relative to sales during later periods.

Overall Insights

The data indicates robust growth in both cost of goods sold and inventory levels, reflecting expansion or increased operational scale. However, the downward trend in inventory turnover ratio might imply less efficient inventory management over time or build-up in stock not immediately matched by sales growth. This combination calls for attention to inventory control and sales alignment to optimize working capital utilization.

The financial data over the analyzed quarters reveal several noteworthy trends in the company's performance and operational metrics.

Net Sales

Net sales exhibit a general upward trend over the period. Starting from approximately 332 million US dollars at the end of March 2017, sales surged consistently with minor fluctuations. A notable dip appears in the first quarter of 2020, where sales fell to about 476 million US dollars from the previous quarter's 591 million US dollars. However, this decline was quickly recovered and followed by robust growth through 2021 and the first half of 2022, culminating in net sales exceeding 1.29 billion US dollars by June 2022. The overall pattern indicates significant growth in revenue alongside some episodic volatility, particularly around early 2020.

Accounts Receivable, Less Allowance for Credit Losses

Accounts receivable balances also trend upward throughout the period, rising from roughly 223 million US dollars at the end of March 2017 to approximately 692 million US dollars by June 2022. This steady increase parallels net sales growth, though the rise is somewhat uneven with some quarters showing slight decreases. For example, after reaching 373.6 million US dollars in September 2019, receivables dropped to about 319.5 million US dollars by December 2019, then hovered around similar levels before increasing markedly starting early 2020 through mid-2022. This improvement suggests growing sales on credit, reflecting expanding business scale and possibly longer collection periods.

Receivables Turnover Ratio

The receivables turnover ratio fluctuates moderately, generally holding within a range of approximately 5.7 to 7.4 times annually. The ratio improves from 5.97 in March 2018 to peak at 7.36 in June 2019, indicating efficient collection of receivables during that interval. Subsequently, turnover ratios show periodic declines and recoveries, staying mostly between 6.0 and 6.8 times. These fluctuations, combined with overall rising receivables, may imply variations in credit policies or payment terms extension, but the company appears to maintain consistent collection efficiency over the analyzed timeframe.

In summary, the company demonstrates strong revenue growth accompanied by a parallel increase in accounts receivable, reflecting expanded sales volume and credit extension. The receivables turnover ratio, though fluctuating, indicates sustained collection effectiveness. Some volatility observed around early 2020 aligns possibly with market or operational disruptions but was followed by rapid recovery and continued growth through mid-2022.

The cost of goods sold (COGS) demonstrates a general upward trajectory from March 2017 through June 2022. Initial figures near $221 million in early 2017 rise steadily, experiencing periodic increases each quarter, peaking over $834 million by mid-2022. Notably, this growth is marked by some fluctuations, particularly a sharp rise from early 2020 to late 2021, reflecting increased production or sales activities over this period.

Accounts payable similarly show a rising pattern across the analyzed quarters. Starting at approximately $159 million in March 2017, accounts payable increase substantially, surpassing $697 million by March 2022, before slightly decreasing to around $614 million by June 2022. This increase indicates extended credit terms or higher purchases on account, consistent with the growing cost of goods sold.

The payables turnover ratio, available from the first quarter of 2018, fluctuates over the period without a clear linear trend. Initially measured at 4.67, it peaks around 6.05 in the third quarter of 2020, suggesting a quicker payment cycle during this time. However, subsequent quarters show a decline to as low as 3.49 in the first quarter of 2022, implying slower payments or longer credit terms. The variability in the turnover ratio indicates changes in payment policy or supplier negotiations over time.

Cost of Goods Sold (COGS)

Demonstrates consistent growth, increasing nearly fourfold from early 2017 to mid-2022, with notable acceleration post-2019.

Accounts Payable

Also trend upward significantly, generally tracking with COGS growth but showing some quarterly variation, especially a slight decrease in mid-2022.

Payables Turnover Ratio

Exhibits fluctuations, with higher turnover around 2020 indicating faster payments, followed by decline in early 2022, reflecting extended payment periods.

The quarterly financial data reveals distinct trends and fluctuations in key financial metrics over the observed periods.

Working Capital

Working capital exhibits a generally increasing trend over the years, starting from $364,794 thousand in March 2017 and reaching $1,319,135 thousand by June 2022. Notable growth accelerated from 2020 onwards, with substantial increases observed quarterly, reflecting an expansion in current assets relative to current liabilities. However, some quarters, such as June 2021 and December 2021, show a temporary decline or plateau, indicating occasional short-term variations.

Net Sales

Net sales demonstrate a consistent upward trajectory from $331,814 thousand in March 2017 to $1,291,391 thousand in June 2022. Periodic seasonal fluctuations are noticeable, with stronger sales typically in the fourth quarters. Despite a minor decline around early 2020, possibly linked to external economic factors, sales recovered swiftly thereafter, showing increased growth momentum in 2021 and early 2022.

Working Capital Turnover

Working capital turnover ratios present variability across the quarters. This metric declined from values above 3.5 in 2017 to as low as around 2.4 in 2020, indicating a slower conversion of working capital into sales during that period. However, turnover ratios rebounded sharply in 2021 and 2022, peaking at 5.4 in March 2022 before settling to 3.36 in June 2022. The resurgence suggests improved efficiency in utilizing working capital to generate sales in recent quarters.

Overall, the data points to steady growth in sales and working capital levels, accompanied by fluctuations in working capital turnover that reflect changing operational efficiency. The company appears to have navigated through periods of reduced turnover efficiency, notably around 2020, and regained momentum with effective capital usage in later stages.

The analysis of inventory turnover and average inventory processing period over the quarters reveals distinct trends and fluctuations.

Inventory Turnover Ratio

The inventory turnover ratio shows a general declining trend from a high near 2.87 in early 2018 down to the low 2.1–2.3 range by mid-2022. This suggests that inventory is being sold and replaced less frequently over time. The ratio initially decreased from 2.87 in March 2018 to around 2.38 by March 2019, before fluctuating slightly in the range of 2.2 to 2.7 across subsequent quarters. The lowest turnover appears in mid-to-late 2021, reaching approximately 2.16, indicative of slower inventory movement during that period.

Average Inventory Processing Period

The average inventory processing period, measured in days, exhibits an inverse trend relative to inventory turnover. Starting around 127 days in March 2018, the processing period generally increased to peak near 160–169 days in 2021 and mid-2022. This indicates inventory remaining longer in stock before being sold or processed. Notably, temporary dips in the processing period correspond with short-term upticks in turnover, but the overall direction points toward longer holding times.

Relationship Between Metrics

The observed inverse relationship between inventory turnover and average processing period aligns with typical inventory dynamics: as inventory turnover decreases, the average days inventory remains in stock increases. The gradual slowdown in turnover alongside lengthening processing periods may reflect changes in demand, supply chain factors, or management strategies affecting inventory efficiency.

Implications

The steady decline in the turnover ratio and increase in processing period suggest a potential buildup of inventory or slower sales cycles in more recent periods. This could impact working capital management and might necessitate review of inventory control policies to optimize turnover rates and reduce holding costs.

Receivables Turnover Ratio

The receivables turnover ratio shows a fluctuating trend from March 2018 through June 2022. Starting at 5.97 in March 2018, it increased to 6.64 in June 2018 but then decreased slightly to 5.91 and 5.7 in the subsequent quarters. The ratio improved again through 2019, peaking at 7.36 in June 2019, followed by a gradual decline to 5.81 by December 2020. In 2021, the ratio stabilized around the mid to high 6-point range, varying between 6.57 and 6.84. In 2022, a mild downward trend is seen with figures of 6.67, 6.41, and other values near this range. Overall, the turnover indicates periods of improved efficiency in receivables collection, with some variability and no strong directional trend in the recent quarters.

Average Receivable Collection Period (Number of Days)

The average collection period inversely reflects the turnover ratio’s movements. From March 2018's 61-day period, there was an improvement as collection periods shortened to a low of 50 days in June 2019, indicating faster receivable turnover. However, collection days then increased again, reaching 63 days by December 2020. The period generally ranges between low 50s to low 60s throughout the data span, with the more recent quarters in 2021 and 2022 mostly between 53 and 57 days. This suggests a relatively stable collection timeframe, with some moderate fluctuations but no sustained lengthening or shortening trend.

The data reveals a detailed view of the company's inventory management, receivables collection, and overall operating cycle spanning from 2017 through mid-2022. Several noteworthy trends emerge from the analysis of these key financial metrics.

Average Inventory Processing Period

The inventory processing period exhibits a general upward trend over the observed intervals, beginning at 127 days in early 2018 and reaching a peak of 169 days by late 2021. Although some fluctuations occurred, such as a temporary decline to 135 days in late 2019, the latter periods show sustained increases, indicating that inventory is held longer over time. The increased inventory days could imply slower turnover or potential supply chain considerations affecting stock levels.

Average Receivable Collection Period

The collection period for receivables demonstrates relative stability with modest variation. Starting around 61 days in early 2018, the period fluctuates mostly between 50 and 63 days without a clear trending direction. This suggests consistent credit and collection policies with effective management maintaining relatively steady receivables turnover. Minor increases towards 55-57 days in 2022 indicate a slight extension in collection times but remain within a manageable range.

Operating Cycle

The operating cycle, combining inventory and receivables periods, follows a pattern similar to inventory trends. From 188 days in early 2018, it gradually rises to approximately 224 days by late 2021 before a slight contraction to 212 days in mid-2022. The increasing operating cycle corresponds with the elongation of inventory processing, implying greater capital is tied up in working capital components over time. This extended cycle period may impact liquidity and operational cash flows if not offset by other efficiencies.

In summary, the company appears to experience an increasingly prolonged inventory holding period and a fairly consistent receivables collection timeframe, leading to an expanded overall operating cycle. Close monitoring of inventory turnover efficiency and working capital management is advisable to mitigate potential impacts on cash flow and operational flexibility.

The analysis of the payables turnover ratio and the average payables payment period over the observed quarters reveals notable fluctuations and underlying trends in the company's management of accounts payable.

Payables Turnover Ratio

This ratio, which reflects the frequency with which payables are paid during the period, was initially missing data for the earliest quarters but started at 4.67 in March 2018. It then experienced a slight increase to 4.94 in June 2018, followed by a decline to around 4.32-4.34 in the latter half of 2018.

In 2019, the ratio generally increased, peaking at 5.79 in December 2019, indicating a faster payment cycle compared to previous periods. The upward trend in 2019 suggests improved efficiency in payables management during that year.

However, starting in 2020, the ratio showed a downward trend with minor variations, decreasing from 6.05 in March 2020 to a low of 3.49 in June 2021. This decline marks a slower turnover of payables, possibly reflecting relaxed payment terms or cash flow management adjustments amid external factors during this timeframe.

By mid to late 2022, the ratio began to recover slightly, reaching 4.76 in June 2022, indicating a partial return to quicker payment cycles.

Average Payables Payment Period

This metric represents the average number of days taken to pay suppliers. Starting at 78 days in March 2018, it decreased to a low of 60 days in June 2020, suggesting improved payment timeliness during the early phases of the observation period.

Following this, the average payment period extended significantly, peaking at 105 days in June 2021. This elongation in payment period corresponds inversely with the decline in the payables turnover ratio during the same timeframe, indicating that the company was taking longer to pay its suppliers.

The extended payment periods from 2020 through mid-2022 may reflect strategic cash management decisions or responses to broader economic or operational challenges.

In June 2022, the average payment period shortened to 77 days, implying an improvement in payment discipline or altered operational circumstances.

In summary, the data indicates that from 2018 to 2019, the company demonstrated an increasing efficiency in managing its payables, with faster turnovers and shorter payment periods. Starting in 2020, a reversal occurred with slower payables turnover and extended payment periods, possibly driven by strategic or external factors, followed by a tentative recovery in payables management efficiency in mid-2022.

The data reveals several notable trends in the company's operational efficiency over the observed periods. The average inventory processing period demonstrates an overall upward trend from 127 days in the early 2018 quarters to a peak of 169 days by the third quarter of 2021, followed by a slight decrease to 155 days in the second quarter of 2022. This suggests a general lengthening in the time inventory remains in stock before being sold, potentially indicating challenges in inventory management or changing sales dynamics.

Regarding accounts receivable, the average receivable collection period fluctuates moderately between 50 and 64 days over the timeframe without a consistent directional trend. The period shows occasional decreases and increases, ending near the middle of the range at 57 days in the second quarter of 2022. This indicates relatively stable collection efficiency with minor short-term variability.

The average payables payment period exhibits considerable fluctuations, starting at 78 days early on and reaching a high of 105 days by the fourth quarter of 2021, before declining sharply to 77 days by the second quarter of 2022. The increase reflects an extension in the time taken to pay suppliers or creditors for purchases, which could be a deliberate strategy to manage cash flow or a reflection of payment terms and supplier relationships evolving. The subsequent decline might indicate a shift towards faster payables turnover or changes in payment policies.

Combining these elements, the cash conversion cycle, which measures the time between outlay of cash and cash recovery, remains relatively stable with some oscillations throughout the period. It starts at 110 days in early 2018, reaches peaks around 140 days in 2019, drops to about 102 days in early 2021, and then rises again to 135 days by mid-2022. This cycle length suggests that despite variations in individual components, the overall efficiency of working capital use has not dramatically improved or deteriorated, though the late increase in 2022 may warrant attention for potential liquidity impacts.

In summary, the company shows a tendency towards longer inventory holding periods and variable payment and collection periods. This mixed pattern reflects dynamic management of operational assets and liabilities, with potential implications for working capital strategies and financial flexibility. Monitoring these trends further could provide insights to optimize cash flow and operational efficiency.