General Mills Inc. (NYSE:GIS)

The analysis of the financial data over the six-year period reveals notable trends in operational efficiency and working capital management ratios.

Inventory Turnover

The inventory turnover ratio fluctuated moderately, starting at 7.4 in 2014, peaking slightly at 7.59 in 2016, then declining to a low of 6.28 in 2018 before increasing again to 7.12 in 2019. This pattern suggests some variability in how effectively inventory is managed, with a temporary decline in turnover efficiency around 2017-2018.

Receivables Turnover

The receivables turnover ratio showed a declining trend over the period, decreasing from 12.07 in 2014 to 10.04 in 2019, with a more pronounced drop after 2016. This indicates a slower collection of receivables, which could affect liquidity and cash flow management.

Payables Turnover

Payables turnover decreased steadily from 7.16 in 2014 to 3.89 in 2019. The substantial reduction reflects a longer payment period to suppliers, indicating potential changes in payment policies or management of trade credit, possibly to preserve cash.

Average Inventory Processing Period

The average number of days to process inventory remained stable at around 48 days through 2016 but increased notably to 58 days by 2018 before dropping back to 51 days in 2019. This increase correlates with the decreased inventory turnover observed during the same timeframe.

Average Receivable Collection Period

This metric increased from 30 days in 2014 to a peak of 39 days in 2018, then slightly improved to 36 days in 2019. The lengthening collection period aligns with the lower receivables turnover, suggesting a slowing in cash inflows from customers.

Operating Cycle

The operating cycle extended progressively from 79 days in 2014 to 97 days in 2018 before shortening to 87 days in 2019. The longer operating cycle signifies an increase in the total time taken to convert raw materials into cash, driven by slower inventory processing and receivables collection.

Average Payables Payment Period

The average time to pay suppliers increased significantly from 51 days in 2014 to 97 days in 2018, maintaining a similar high level at 94 days in 2019. This increase is consistent with the reduced payables turnover and suggests extended use of supplier credit to enhance liquidity.

Cash Conversion Cycle

The cash conversion cycle showed a notable decrease from 28 days in 2014 to negative 7 days in 2019, with fluctuations in between. The negative value in 2019 implies that the company is taking longer to pay its suppliers than it takes to collect receivables and sell inventory combined, indicating strong working capital efficiency and favorable cash flow timing by leveraging payables.

Overall, the data indicates a trend toward extended operating and payment cycles with a decline in receivables and payables turnover ratios. The company appears to be managing its cash conversion cycle effectively by lengthening its payment terms while maintaining inventory levels and collections within reasonable ranges, resulting in improved cash management despite some operational delays.

The financial data exhibits several notable trends concerning cost of sales, inventory levels, and inventory turnover ratios over the six-year period ending May 26, 2019.

Cost of Sales

There is an overall decline in the cost of sales from approximately 11.54 billion US dollars in 2014 to a low of around 10.06 billion in 2017. However, following this trough, the cost of sales increases to about 11.11 billion by 2019, indicating a recovery or expansion phase after a period of reduction.

Inventories

Inventory levels fluctuated moderately during the period under review. Beginning at roughly 1.56 billion in 2014, inventories decreased steadily to approximately 1.41 billion in 2016, recovered to a peak of about 1.64 billion in 2018, then declined again slightly to 1.56 billion in 2019. This pattern suggests adjustments in inventory management, possibly reflecting changes in demand or supply chain strategies.

Inventory Turnover Ratio

The inventory turnover ratio remained relatively stable but shows a slight decline from 7.4 in 2014 to 6.28 in 2018, followed by a rebound to 7.12 in 2019. This indicates a reduction in the pace at which inventory was sold and replenished over the earlier years, with an improvement in the latest year analyzed. The initial decrease could suggest slower sales or increased inventory holding, while the later improvement signifies more effective inventory utilization or stronger sales performance.

Net Sales

Net sales demonstrated a declining trend from 2014 through 2017, dropping from approximately 17.91 billion USD to 15.62 billion USD. There was a slight recovery starting in 2018, with sales stabilizing and increasing to around 16.87 billion USD by 2019. Despite this rebound, the 2019 sales figure remained below the 2014 initial level, indicating some volatility and challenges impacting revenue generation over the observed period.

Receivables

Receivables experienced fluctuations throughout the years. Initially, they decreased from about 1.48 billion USD in 2014 to 1.36 billion USD in 2016, followed by a notable increase reaching nearly 1.68 billion USD by 2018, remaining stable through 2019. This pattern suggests variations in credit management or sales on credit terms, with a trend towards higher outstanding receivables in later years.

Receivables Turnover

The receivables turnover ratio declined consistently from 12.07 in 2014 to a low of 9.35 in 2018, improving slightly to 10.04 in 2019. This downward trend indicates a lengthening in the collection period of receivables over the years, reflecting potentially slower cash inflows from customers. The slight improvement in 2019 may signal some enhancement in collection efficiency or stricter credit controls.

Cost of Sales

The cost of sales initially decreases from 11,581,800 thousand US dollars in 2014 to a low of 10,056,000 thousand in 2017. However, there is a notable increase in the subsequent periods, reaching 11,108,400 thousand US dollars by 2019. This indicates a reduction in cost of sales through 2017, followed by a rebound in the last two years of the data set.

Accounts Payable

Accounts payable show a consistent upward trend over the period analyzed. Starting at 1,611,300 thousand US dollars in 2014, the amount increases steadily to 2,854,100 thousand US dollars by 2019. This reflects a significant increase in short-term liabilities owed to suppliers over the six years.

Payables Turnover Ratio

The payables turnover ratio exhibits a declining trend from 7.16 in 2014 to a low of 3.76 in 2018, with a slight increase to 3.89 in 2019. The reduction in turnover ratio suggests that the company is taking longer to pay its suppliers as compared to earlier periods, potentially reflecting extended payment terms or changes in cash management practices.

The analysis of the annual financial data reveals several key trends in working capital, net sales, and the associated efficiency measured by working capital turnover for the periods under review.

Working Capital

Working capital remains negative throughout the entire six-year period, indicating that current liabilities consistently exceed current assets. The deficit deepened notably over time, starting at -1,030,000 US$ thousands in May 2014 and worsening to -2,900,600 US$ thousands by May 2019. A significant increase in the negative balance occurred between May 2017 and May 2018, where the working capital fell sharply from -1,269,400 to -3,218,200 US$ thousands, suggesting an intensified strain on short-term liquidity.

Net Sales

Net sales show a declining trend from May 2014 through May 2017, decreasing from 17,909,600 US$ thousands to 15,619,800 US$ thousands. The period of 2017 to 2019 shows a reversal, with sales stabilizing and then increasing to 16,865,200 US$ thousands by May 2019. This suggests that after consecutive years of contraction, the company began to recover or expand its revenue base in the latter years.

Working Capital Turnover

The working capital turnover ratio is not provided, which hinders direct assessment of how effectively the company is using its working capital to generate sales. Given the provided data, calculation of this ratio would involve dividing net sales by working capital; however, the negative values of working capital complicate the interpretability of such a ratio.

Overall, the data indicates a challenging liquidity position, with persistent and deepening negative working capital that could impact operational flexibility. Meanwhile, net sales faced downward pressure for several years but showed signs of recovery toward the end of the period. Further analysis would benefit from additional data on profitability, cash flows, or operational efficiency to contextualize these findings more comprehensively.

Inventory Turnover

The inventory turnover ratio exhibited a fluctuating trend over the six-year period. Starting at 7.4 in 2014, it increased slightly to 7.58 in 2015 and 7.59 in 2016, indicating a marginal improvement in inventory management and sales efficiency during these years. However, the ratio declined significantly to 6.78 in 2017 and further decreased to 6.28 in 2018. This downward movement suggests a slower turnover of inventory, potentially reflecting either increased inventory levels or reduced sales velocity. In 2019, the ratio partially recovered to 7.12, demonstrating a rebound in inventory movement efficiency, although it remained below the peak levels observed in 2015 and 2016.

Average Inventory Processing Period

The average inventory processing period, measured in days, showed an inverse relationship with the inventory turnover ratio. It remained relatively stable at 49 days in 2014 and 48 days in both 2015 and 2016, indicating consistent inventory holding periods during these years. In 2017, the processing period increased to 54 days, followed by a further rise to 58 days in 2018, highlighting a lengthening of the time inventory was held before sale. This extension corresponds with the declining inventory turnover ratio observed in the same years. In 2019, the processing period decreased to 51 days, suggesting improvements in inventory management and a reduction in the time inventory was held, aligning with the observed recovery in the inventory turnover ratio.

Overall Insights

The data indicates that the company experienced a period of stable and efficient inventory management from 2014 to 2016, characterized by relatively high turnover and shorter processing periods. The subsequent decline in turnover and increase in processing days from 2017 to 2018 may point to challenges such as overstocking, reduced demand, or operational inefficiencies. The partial recovery in 2019 suggests that corrective measures may have been implemented, resulting in better inventory control and faster turnover. Continuous monitoring of these metrics is advisable to maintain optimal inventory levels and sales performance.

Receivables Turnover Ratio

The receivables turnover ratio demonstrates a fluctuating but overall declining trend from 2014 to 2019. Starting at 12.07 in 2014, it peaked slightly at 12.71 in 2015, then gradually declined to 10.04 by 2019. This decline suggests a reduction in the frequency with which the company collects its accounts receivable over the period, potentially indicating slower collection efficiency.

Average Receivable Collection Period

The average receivable collection period shows an increasing trend over the analyzed years, moving from 30 days in 2014 to a peak of 39 days in 2018, before slightly improving to 36 days in 2019. The longer collection period aligns with the declining receivables turnover ratio and indicates that the company is taking more time on average to collect payments from customers.

Overall Interpretation

There is a consistent pattern of decreasing liquidity in accounts receivables, as evidenced by the downward trend in turnover ratio and the corresponding rise in collection period. This suggests that credit management may have become less effective or that customer payment terms were extended, potentially impacting cash flow. The slight improvement in 2019 hints at corrective measures but does not fully reverse the trend.

Average Inventory Processing Period

The average inventory processing period remained relatively stable at 48 to 49 days from 2014 to 2016 before increasing notably in 2017 to 54 days and reaching a peak of 58 days in 2018. In 2019, this metric decreased to 51 days, indicating improved inventory turnover compared to the prior two years but still above the earlier periods.

Average Receivable Collection Period

This period showed a slight decline from 30 days in 2014 to 29 days in 2015, followed by a stable 30 days in 2016. It then increased steadily, reaching 33 days in 2017 and peaking at 39 days in 2018. A modest improvement is observed in 2019 when the collection period shortened to 36 days, though it remained longer than in earlier years.

Operating Cycle

The operating cycle demonstrated a similar pattern to the individual components, holding steady around 77 to 79 days in 2014 and 2015 and slightly increasing to 78 days in 2016. A significant upward trend occurred in 2017 and 2018, with the cycle extending to 87 and 97 days, respectively. By 2019, the operating cycle reduced to 87 days, suggesting some recovery in overall operational efficiency, yet still longer than the initial years in the dataset.

Payables Turnover Ratio

The payables turnover ratio demonstrates a consistent decline from 7.16 in 2014 to 3.89 in 2019. This downward trend indicates that the company is settling its payables more slowly over the analyzed period. A lower turnover ratio generally suggests an extended credit period from suppliers or slower payments.

Average Payables Payment Period

The average payables payment period has increased substantially, from 51 days in 2014 to 94 days in 2019. This upward trend corroborates the decline in payables turnover, showing that the company took progressively longer to pay its suppliers during these years.

Overall Analysis

The inverse relationship between the payables turnover ratio and the average payment period is evident in the data. The lengthening of the payment period by approximately 43 days over five years suggests that the company may have been leveraging supplier credit more aggressively to manage working capital. However, the slight increase in payables turnover from 3.76 in 2018 to 3.89 in 2019 might indicate a minor shift toward quicker payment in the latest period.

Inventory Processing Period

The average inventory processing period shows a general upward trend from 49 days in 2014 to a peak of 58 days in 2018, followed by a decline to 51 days in 2019. This indicates that the company’s inventory turnover slowed down between 2014 and 2018 but improved somewhat in the final year analyzed.

Receivable Collection Period

The average receivable collection period increased from 30 days in 2014 to 39 days in 2018 before decreasing to 36 days in 2019. This suggests that the company's efficiency in collecting receivables initially worsened but saw some recovery in 2019.

Payables Payment Period

The average payables payment period exhibited a marked increase over the years, rising from 51 days in 2014 to 94 days in 2019. This trend reflects a substantial lengthening of the time taken to settle payables, which may indicate extended credit terms negotiated with suppliers or a deliberate strategy to conserve cash.

Cash Conversion Cycle

The cash conversion cycle decreased notably from 28 days in 2014 to 8 days in 2016, then fluctuated slightly, with 10 days in 2017. Data for 2018 is missing, and in 2019, the cycle became negative at -7 days. A negative cash conversion cycle suggests that the company is able to collect cash from customers faster than it needs to pay its suppliers, indicating strong working capital management in the latest year.