Home Depot Inc. (NYSE:HD)

Inventory Turnover

The inventory turnover ratio demonstrates a general downward trend from May 2020 to July 2022, decreasing from 4.93 to around 3.96, indicating a slowing in the frequency of inventory sales. However, from July 2022 onwards, there is a slight recovery with turnover rebounding to values around 4.3 to 4.85 by early 2024, suggesting some improvement in inventory management efficiency.

Receivables Turnover

Receivables turnover shows considerable volatility over the periods reviewed. It peaked near 47 in late 2020 but experienced a significant decline starting mid-2022, dropping from 42.15 to lows around 26.74 by late 2024. This suggests slower collections from customers, potentially increasing credit risks or reflecting extended payment terms.

Payables Turnover

Payables turnover fluctuates within a relatively narrow range, generally between 6 and 10. The ratio rises notably in the latter stages, reaching over 10 in early 2024, implying faster payments to suppliers during that period. This may reflect improved cash availability or changed supplier payment policies.

Working Capital Turnover

Working capital turnover is highly volatile, with an extreme spike to 417.56 in early 2022 followed by a sharp fall back to lower levels thereafter. The large spike likely results from very unusual operational or balance sheet factors during that period. Post-spike, values stabilize within a broad range of approximately 16 to 56, indicating fluctuating but generally increased efficiency in using working capital compared to early data.

Average Inventory Processing Period

The average inventory processing period generally lengthens over the timeline, moving from approximately 74 days in early 2020 to peaks near 91−92 days in 2022, before a partial reduction to around 81−85 days toward 2025. The lengthening cycle suggests slower inventory turnover during much of this time, consistent with the pattern observed in inventory turnover ratios.

Average Receivable Collection Period

This metric remains fairly stable around 8 to 9 days initially but starts extending gradually from mid-2022 onwards, increasing to around 13−14 days by late 2024. This confirms the slowdown indicated by decreasing receivables turnover, reflecting lengthier customer payment periods or collection challenges.

Operating Cycle

The operating cycle widens from approximately 71−82 days early on to a peak of around 100−101 days in mid-2022, then fluctuates moderately between 90 and 100 days subsequently. The increasing operating cycle implies longer durations to convert inventory and receivables into cash.

Average Payables Payment Period

The average payables payment period shows moderate variation, mostly between 40 and 57 days. Initial periods tend towards the higher end, followed by a decrease to around 36 days in early 2024, before rising again later. This suggests varying payment pace to suppliers, with a trend toward faster payments in early 2024.

Cash Conversion Cycle

The cash conversion cycle expands notably from 17 days in mid-2020 to a peak exceeding 56 days in late 2022, before stabilizing in the 46−52 day range by 2024 and 2025. The overall lengthening cash conversion cycle indicates increased time required to turn resource inputs into cash flows from operations, potentially signaling reduced liquidity efficiency during recent periods.

Summary Insight

Overall, the financial activity reflects a period of operational challenges with inventory management slowing and receivables collection extending, resulting in a lengthened operating and cash conversion cycle. Payables turnover and payment periods show fluctuations suggesting variable supplier payment strategies. The exceptionally high working capital turnover early in 2022 appears as an outlier event. More recent data suggests some improvement in inventory turnover and a slight normalization of cash cycles, although receivables collection remains slower than earlier periods.

Cost of Sales

The cost of sales demonstrates notable fluctuations over the observed periods. Initially, there is an upward trend from May 2020 through August 2021, with costs rising from approximately $18.6 billion to a peak near $27.5 billion. Subsequently, the cost of sales declines and fluctuates around the $23-29 billion range. The latter periods show increased volatility, with intermittent increases and decreases, reaching around $30.1 billion by August 2025. This pattern suggests variability in sales volumes or changes in input costs over time but no consistent long-term upward or downward trend beyond the initial increase.

Merchandise Inventories

Merchandise inventories reveal a general increasing trend from May 2020 through July 2022, rising from roughly $15 billion to about $26 billion. After this peak, inventories decline somewhat, settling around $22-26 billion in subsequent periods. Notably, there is a sharp reduction aft er July 2022 before stabilizing with moderate fluctuations. This pattern may indicate adjustments in inventory management in response to demand changes or supply chain conditions, with inventory levels maintained relatively high in the latter periods compared to the start.

Inventory Turnover

Inventory turnover ratios begin relatively high at 4.93 in May 2020, increasing to a peak of 5.83 in August 2020, implying faster inventory movement early in the period. Thereafter, turnover declines gradually to a low near 3.96 by July 2022, indicating slower inventory turnover. From mid-2022 onward, the turnover ratio oscillates moderately between approximately 4.0 and 4.9, showing some recovery but remaining below the early high levels. This decline in turnover suggests either slower sales relative to inventory or increased inventory holdings, consistent with the observed inventory level trends.

Overall Analysis

Over the observed timeframe, the company shows an initial growth phase characterized by rising cost of sales and inventory turnover, followed by episodes of volatility in both metrics. Inventory levels build up steadily until mid-2022 before experiencing some correction. The dip in inventory turnover aligns with the increased inventory levels, indicating a possible slowdown in sales velocity or more cautious stock management. The later periods reflect attempts to stabilize inventory and cost patterns in the face of fluctuating market or operational conditions. Overall, the data suggest responses to external factors affecting demand, supply chain, or pricing dynamics that influence sales costs and inventory efficiency.

Net Sales

Net sales exhibit a cyclical and fluctuating pattern over the observed periods. Initially, sales increased significantly from approximately 28.3 billion USD in early May 2020 to a peak of about 41.1 billion USD in August 2021. This peak was followed by a general decline until early 2023, dipping to roughly 35.8 billion USD, before recovering again, reaching highs near 43.2 billion by mid-2024. The data shows consistent seasonal variation, with sales often peaking around mid-year quarters. Overall, the trend suggests periods of strong growth interspersed with corrections, reflecting a dynamic sales environment possibly influenced by external market factors.

Receivables, Net

The net receivables demonstrate an upward trend throughout the periods, increasing from about 2.6 billion USD in early 2020 to peaks exceeding 5.8 billion USD by mid-2025. Notable growth is observed from mid-2022 onwards, with receivables almost doubling during this timeframe. This escalation suggests an increase in credit extended to customers or delayed collections, which may impact cash flow management. The receivables amounts fluctuate in tandem with sales but display a more pronounced upward trajectory, indicating relatively slower conversion of sales into cash.

Receivables Turnover Ratio

The receivables turnover ratio shows a declining trend over the entire period. Starting at a relatively high turnover value of around 43-47 in 2020, the ratio gradually decreases to values below 30 by 2024 and 2025, with some fluctuations. Lower turnover ratios indicate that the company is collecting receivables at a slower rate compared to earlier periods. This decreasing efficiency in receivables management may suggest a build-up of outstanding credit or extended payment terms to customers, which could affect liquidity and working capital.

Summary

The financial data reveal fluctuating net sales with an overall recovery trend after mid-2022, combined with a steadily increasing receivables balance. However, the receivables turnover ratio decreases significantly, pointing to slower collection processes or elongated credit terms. This combination indicates potential challenges in cash conversion cycles, despite stable or growing sales figures. Management may need to focus on optimizing credit policies and collection efforts to maintain healthy liquidity and operational efficiency.

Cost of Sales

The cost of sales exhibits notable fluctuations over the reported periods. Initially, there is an upward trend from May 2020 to August 2021, with values increasing from approximately $18.6 billion to a peak near $27.4 billion. This is followed by a period of variability, wherein costs decline in some quarters but then rise again, reaching an all-time high above $30 billion in August 2025. This pattern suggests some seasonal or operational factors influencing cost levels, along with an overall increasing cost base over the five-year horizon.

Accounts Payable

Accounts payable display a generally increasing trend from May 2020 through May 2022, rising from roughly $10.1 billion to about $15.4 billion. Subsequently, the level fluctuates with some quarters showing declines and others increases. The data reflect a cyclical pattern with peaks and troughs, suggesting variable supplier payment timings or purchasing volumes. Despite these fluctuations, the overall payable balance tends to remain within a range between approximately $10 billion and $15 billion, without a sustained upward or downward trend over the long term.

Payables Turnover Ratio

The payables turnover ratio shows considerable variability across the reported quarters. Starting at a ratio of 7.35 in May 2020, it drops to a low near 6.4 in November 2020, indicating slower payment relative to purchases during that period. From late 2020 onwards, the ratio mostly rebounds, with a general upward movement peaking at over 10 in January 2024. This suggests that the company accelerated the pace of supplier payments or that the relative volume of purchases decreased. The ratio fluctuates between approximately 6.4 and 10.13 during the period, reflecting changing working capital management strategies and possibly varied credit terms or operational cash flows.

Overall Observations

Collectively, the data reveal that the company experienced growth in cost of sales, indicative of expansion or increased operational activity. Accounts payable have proportionally increased but also exhibit volatility, which may relate to purchasing practices or supplier negotiations. The payables turnover ratio’s fluctuations highlight adjustments in the timing of payables settlement or shifts in operational financing. The upward trends in turnover ratio in later periods could signal improved cash management or tighter control of payables despite increasing cost pressures.

Working Capital

The working capital exhibited notable fluctuations over the observed periods. It started at a moderate level, rising significantly by late 2020 before experiencing a decline through early 2021. A recovery phase is evident mid-2021 to early 2022, reaching a peak around late 2022. However, from early 2023 onward, the working capital generally trended downward with intermittent increases, reflecting variability in short-term asset and liability management. The most recent values indicate a partial rebound after the decline, yet they remain below the peak levels observed in late 2022.

Net Sales

Net sales demonstrated a general upward trajectory with some volatility. After an initial increase through mid-2020, sales experienced a mild decline in late 2020 and early 2021. Subsequently, a consistent growth phase followed, peaking around mid-2023. Despite some fluctuations thereafter, including a dip in late 2023 to early 2024, net sales maintained relatively high levels compared to the initial periods. The latest data points reveal a resurgence, with sales reaching new highs by mid-2025, indicating strong revenue generation capabilities.

Working Capital Turnover

The working capital turnover ratio showed considerable variation throughout the timeline. Initial values were relatively low, followed by spikes particularly pronounced in early 2022, likely reflecting an efficiency gain or changes in working capital management. After this peak, there was a fluctuating but generally declining trend until early 2023. Post early 2023, the ratio rose sharply once more, reaching elevated levels in 2024 and mid-2025, suggesting periods of improved utilization of working capital in generating sales. This pattern indicates dynamic operational adjustments impacting capital efficiency over the quarters.

Overall Analysis

The data reveals dynamic financial conditions with significant shifts in working capital and sales performance over time. Despite volatility in working capital levels, the company managed to sustain and grow net sales. The fluctuations in working capital turnover ratio highlight changes in operational effectiveness and capital management strategies. The interplay between these metrics suggests active adjustments to maintain sales growth while navigating working capital constraints, reflecting responsive financial management amid evolving market conditions.

Inventory Turnover

The inventory turnover ratio exhibited fluctuations over the observed periods. Initially, it rose from 4.93 to a peak of 5.83, indicating a faster rate of inventory movement early on. Subsequently, the ratio mostly trended downward from 5.83 to a lower range around 4.0–4.5 over the mid to later periods. Despite some minor recoveries, the ratio did not return to its early peak, suggesting a generally slower turnover in recent quarters. This indicates that inventory is being sold or used less frequently compared to earlier periods.

Average Inventory Processing Period

This metric, indicative of the average number of days inventory remains before sale or use, displayed an inverse pattern relative to inventory turnover. Starting at 74 days, it decreased to a low of 63 days, aligning with the initial increase in turnover. Thereafter, it gradually increased to a peak near 92 days, indicating longer inventory holding times. In subsequent periods, the processing period fluctuated between the high 70s and mid-80s, reflecting periodic variability but generally longer duration than at the beginning of the timeline.

Overall Trends and Insights

The analysis reveals a clear inverse relationship between inventory turnover and the average inventory processing period. Early periods show improved efficiency with higher turnover and shorter holding days. Over time, the trend reversed, pointing to less efficient inventory management or changes in demand or supply chain dynamics. The increasing days inventory remains on hand may imply slower sales, potential overstocking, or strategic shifts in inventory policy. While recent periods show some stabilization, turnover remains below earlier peaks, and inventory days held remain comparatively elevated, which could impact working capital and operational agility.

Receivables Turnover

The receivables turnover ratio exhibits considerable variability over the observed periods. Initially, it remained relatively high, fluctuating between approximately 39 and 47 from May 2020 through January 2023, with some periodic dips and recoveries. However, starting from April 2023, the turnover ratio begins to decline more noticeably, reaching the lowest values in July and October 2024, around 26 to 28. Although there is a slight uptick in early 2025, the overall trend suggests a weakening in the efficiency of receivables collection over the later periods.

Average Receivable Collection Period

The average receivable collection period generally moved inversely to the receivables turnover ratio, as expected. Early data show a relatively short collection period between 8 and 9 days, which remained steady through the first couple of years. From around mid-2023 onward, there is an upward trend in the collection period, increasing from approximately 9 or 10 days up to peaks of 13 and 14 days in late 2024. This increase indicates that the company took longer to collect receivables in the more recent periods examined.

Overall Analysis

The combined trends suggest a gradual decline in the efficiency of receivables management over time. Higher turnover ratios earlier in the series imply faster collection, while the more recent decline in turnover and concurrent lengthening of the collection period indicate a slowdown. Such changes could point to challenges in customer payments or changes in credit policies. The firm’s liquidity position related to receivables may have been increasingly strained during the latest periods shown.

The analysis of the quarterly financial data reveals several notable trends in the company's working capital efficiency over the observed periods.

Average Inventory Processing Period

This metric exhibits a fluctuating pattern with an overall upward trend from 74 days initially to a peak near the early 90s in the mid-periods, followed by a moderate decline towards the later periods. Specifically, the inventory processing period increased significantly around May 2022, maintaining higher values compared to the earlier quarters. This suggests a lengthening in the time inventory remains on hand before being sold or processed, which may reflect changes in inventory management, supply chain dynamics, or demand fluctuations.

Average Receivable Collection Period

The receivable collection period has remained relatively stable, mostly hovering between 8 and 10 days in the initial and middle quarters. However, from around early 2023 onwards, there is an observable increase, reaching up to 14 days in several quarters. This indicates that the company has experienced a slight elongation in its collection cycle, potentially signaling changes in credit terms, customer payment behavior, or collection efficiency.

Operating Cycle

The operating cycle, reflecting the total time from inventory acquisition to cash collection, mirrors the trends seen in inventory processing and receivables collection periods. After increasing substantially from approximately 82 days to just over 100 days around mid-2022, it displays a slight fluctuation but remains elevated compared to early data points. This extended operating cycle may impact the company's liquidity and working capital requirements, suggesting the need for careful monitoring and potential improvement in operational efficiency.

Overall, the company's working capital management reveals increasing durations in inventory turnover and receivable collections over the periods observed, leading to a longer operating cycle. While the inventory processing period shows some retracement toward recent periods, the receivables collection time continues to lengthen slightly, cumulatively extending the operating cycle. These trends imply the importance of strategic focus on inventory management and receivables processes to optimize cash flow and financial performance.

The analysis of the payables turnover ratio and the average payables payment period over the observed quarters reveals several notable trends. The payables turnover ratio fluctuates across periods, indicating variations in the company's efficiency in paying its suppliers.

Payables turnover ratio

This ratio shows moderate volatility ranging approximately between 6.4 and 10.1. Early in the timeline, the ratio generally oscillates around the mid-6 to mid-7 range, with notable peaks around the end of 2022 and the beginning of 2024, where the highest values close to or exceeding 9 and 10 are recorded. Such peaks suggest faster payment cycles during those quarters. Conversely, there are intervals of dip, for example, around mid-2022 and parts of 2024 and 2025, where the ratio falls back toward the 7 to 7.5 range, indicating relatively slower payment rates compared to the peaks. This variability points toward an active management of payment terms or supplier relationships, potentially influenced by liquidity or operational factors.

Average payables payment period

The average number of days taken to pay suppliers demonstrates an inverse relationship to the payables turnover ratio, as expected. Early periods show higher payment durations, peaking near 57 days. Over subsequent quarters, a general decline is observed, reaching lows around 36 to 40 days between late 2022 and early 2024, implying quicker payment cycles. In later periods, the payment duration fluctuates but mostly remains between 40 and 50 days, with occasional rebounds close to 48-49 days. This indicates that after a phase of shorter payment periods, the company slightly extends payment duration but keeps it within a moderate range.

Overall, the data suggest that the company has experienced varying payment behaviors over the quarters, with periods of accelerated payments likely improving supplier relationships or reflecting favorable cash management, and intervals of longer payment periods possibly aimed at optimizing working capital. The relatively wide swings in payables turnover and payment days warrant attention to maintain balanced supplier terms and operational liquidity.

Inventory Processing Period

The average inventory processing period exhibits notable fluctuations over the observed timeline. Initially, the period decreases from 74 days to a low of 63 days in mid-2020, followed by an overall upward trend reaching a peak around 91-92 days in mid-2022. Post this peak, the period declines again, fluctuating between approximately 75 and 89 days, with minor oscillations persisting towards early 2025. This indicates variability in the time inventory remains within the system, with notable elongation mid-term before a partial normalization.

Receivable Collection Period

The receivable collection period remains relatively stable throughout the periods, mostly ranging between 8 and 10 days during the early phases. From around early 2023 onwards, a mild increasing trend is apparent, with collection days gradually rising to a range between 11 and 14 days by early to mid-2025. This suggests a slight extension in the average time taken to collect receivables in recent periods, potentially impacting cash inflows.

Payables Payment Period

The payables payment period shows moderate variability with a general range between 36 and 57 days. Initially, it rises from 50 to 57 days in late 2020, then exhibits a downward trend with some fluctuations, reaching a low around 36 days in early 2024. Subsequently, there is some recovery towards 49 days by mid-2025. These movements indicate changes in payment policies or supplier terms, with periods of both extended and shortened payment cycles evident.

Cash Conversion Cycle

The cash conversion cycle reflects the combined effect of inventory, receivables, and payables periods and depicts variability consistent with its components. Starting at 32 days in early 2020, it decreases to 17 days mid-2020, then progressively rises reaching around 56 days by late 2022. Following this peak, it stabilizes in the high 40s to low 50s range through mid-2025. The lengthening of the cash conversion cycle over time indicates a slower conversion of resources into cash, which could have implications for liquidity management.