Illinois Tool Works Inc. (NYSE:ITW)

Inventory Turnover

The inventory turnover ratio demonstrated a fluctuating trend over the period analyzed. It decreased from 6.81 in 2017 to 6.53 in 2018, rose to 7.03 in 2019, then declined again to 6.2 in 2020 and further to 5.01 in 2021. This indicates a general slowdown in the rate at which inventory is sold and replaced, especially notable in the last two years.

Receivables Turnover

The receivables turnover ratio showed a slight improvement from 5.45 in 2017 to 5.73 in 2019, followed by a decline to 5.02 in 2020. A minor recovery to 5.09 occurred in 2021. Overall, the turnover remained relatively stable with modest variation, pointing to a consistent pace in collecting receivables.

Payables Turnover

Payables turnover increased from 14.08 in 2017 to a peak of 17.35 in 2019, indicating quicker payment to suppliers during this period. Subsequently, it declined to 13.81 in 2020, then slightly increased to 14.51 in 2021. This pattern suggests variability in payment practices, with a tendency towards slower payments in the later years compared to the peak in 2019.

Working Capital Turnover

The working capital turnover ratio showed considerable volatility, starting at 3.39 in 2017, significantly rising to 6.6 in 2018, then dropping sharply to around 3.2 by 2020. In 2021, it rebounded to 4.98. The fluctuations suggest changing efficiency in utilizing working capital to generate sales, with notable improvement in 2018 and recovery in 2021 after a mid-period decline.

Average Inventory Processing Period (Days)

This metric increased from 54 days in 2017 to 73 days in 2021, passing through minor fluctuations. A general upward trend is evident, implying a longer time to process and sell inventory, aligning with the declining inventory turnover observed in later years.

Average Receivable Collection Period (Days)

The average collection period for receivables slightly decreased from 67 days in 2017 to 64 days in 2019, then increased again to 73 days in 2020, followed by a marginal reduction to 72 days in 2021. These changes reflect some inconsistency in the efficiency of collecting receivables, with a longer duration noted in the last two years.

Operating Cycle (Days)

The operating cycle showed a generally increasing pattern, moving from 121 days in 2017 and 2018 down to 116 days in 2019, then increasing to 132 days in 2020 and further to 145 days in 2021. This increase indicates a lengthening of the total time taken from inventory acquisition through receivable collection.

Average Payables Payment Period (Days)

This period decreased from 26 days in 2017 to a low of 21 days in 2019, reflecting faster payments to suppliers, but then rose again to 25 days by 2021. The trend indicates some variability, with a tendency to lengthen payment terms after the peak efficiency in 2019.

Cash Conversion Cycle (Days)

The cash conversion cycle lengthened from 95 days in 2017 to 120 days in 2021, with fluctuations including a peak at 106 days in 2020. This denotes an extending period between cash outlay for inventory and the receipt of cash from customers, potentially signaling tighter liquidity management challenges.

The financial data reveals several noteworthy trends over the five-year period under review.

Cost of Revenue

The cost of revenue initially increased from 8,309 million USD in 2017 to 8,604 million USD in 2018, followed by a decline to 8,187 million USD in 2019 and further down to 7,375 million USD in 2020. However, in 2021, the cost of revenue rose again to 8,489 million USD. This pattern suggests variability in the cost structure, with a notable dip during 2020 that potentially corresponds to external or operational factors impacting expenses related to revenue generation.

Inventories

Inventory levels showed an overall upward trend, rising from 1,220 million USD in 2017 to 1,694 million USD in 2021. Despite a slight decrease in 2019 and a minor increase in 2020, the substantial jump in 2021 indicates an increased stockholding, possibly reflecting strategic changes in inventory management or preparation for anticipated demand.

Inventory Turnover Ratio

The inventory turnover ratio, which measures how efficiently inventory is managed, declined steadily over the years from 6.81 times in 2017 to 5.01 times in 2021. This decreasing ratio suggests a slowing rate of inventory movement, potentially signifying overstocking, reduced sales velocity, or changes in product mix that may have prolonged inventory holding periods.

In summary, while costs related to revenue generation exhibited fluctuation with a recovery towards 2021, inventory levels steadily increased. At the same time, the efficiency of converting inventory into sales decreased, as demonstrated by the declining inventory turnover ratio. These trends could indicate evolving operational strategies or external factors affecting demand and supply chain performance.

The financial data over the five-year period demonstrates several noteworthy trends across the key metrics measured.

Operating Revenue

The operating revenue showed a fluctuating pattern within the time frame. It increased from 14,314 million US dollars in 2017 to a peak of 14,768 million US dollars in 2018. Subsequently, there was a decline in 2019 to 14,109 million US dollars and a further decrease in 2020 to 12,574 million US dollars. The revenue recovered in 2021, rising again to 14,455 million US dollars, signaling a rebound following the prior downward trend.

Trade Receivables

Trade receivables remained relatively stable initially, with values close to 2,600 million US dollars in 2017 and 2018. They declined slightly in 2019 to 2,461 million US dollars but increased in the following years, reaching 2,506 million US dollars in 2020 and further rising to 2,840 million US dollars in 2021. This upward shift in the later years might indicate extended credit terms or higher sales on credit.

Receivables Turnover Ratio

The receivables turnover ratio increased gradually from 5.45 in 2017 to a high of 5.73 in 2019, suggesting enhanced efficiency in collecting receivables during this period. However, the ratio decreased significantly to 5.02 in 2020 and showed a modest recovery to 5.09 in 2021. This decline in turnover correlates with the increase in trade receivables in the same timeframe and may indicate slower collection processes.

In summary, the operating revenue experienced a dip primarily in 2019 and 2020 followed by recovery in 2021. Concurrently, trade receivables increased in the latter years, and the efficiency in receivables collection, as measured by the turnover ratio, exhibited a reduction after 2019. These trends could reflect shifts in business activity, credit policies, or external economic conditions impacting the company's operational and financial dynamics during this period.

The financial data reflects various trends concerning cost of revenue, accounts payable, and payables turnover over the five-year period ending December 31, 2021.

Cost of Revenue

The cost of revenue initially increased from 8309 million US dollars in 2017 to a peak of 8604 million in 2018. Subsequently, it declined to 8187 million in 2019 and further decreased significantly to 7375 million in 2020. However, in 2021, it showed a rebound, rising again to 8489 million US dollars. The overall trend indicates a period of volatility with a notable dip in 2020 followed by recovery in 2021.

Accounts Payable

Accounts payable experienced a continuous decline from 590 million US dollars in 2017 to 472 million in 2019. In 2020, this figure increased slightly to 534 million and continued to grow to 585 million in 2021. This pattern suggests a reduction in short-term obligations through 2019 followed by an expansion in payables during 2020 and 2021.

Payables Turnover

The payables turnover ratio rose steadily from 14.08 in 2017 to 17.35 in 2019, indicating an increased efficiency in paying suppliers during this period. However, in 2020 the turnover sharply declined to 13.81, pointing to a slower payment cycle. In 2021, the ratio improved slightly to 14.51 but remained below the earlier peak levels. This decline in turnover in 2020 mirrors the increased accounts payable and lower cost of revenue during the same year, suggesting stress or strategic changes in payment policies amid that period.

The data reveals key trends in working capital, operating revenue, and working capital turnover over a five-year period ending in 2021.

Working Capital

Working capital exhibits significant fluctuations during the period. Initially, it decreased sharply from 4,225 million USD in 2017 to 2,236 million USD in 2018. The figure rebounded in 2019 to 4,099 million USD and then slightly declined to 3,934 million USD in 2020, before dropping again to 2,904 million USD in 2021. The volatility suggests variability in current asset and liability management with notable decreases in 2018 and 2021.

Operating Revenue

Operating revenue shows a generally downward trend from 2017 to 2020, falling from 14,314 million USD to 12,574 million USD. However, in 2021, revenue increased to 14,455 million USD, surpassing the 2017 level. This recovery indicates a resurgence in sales or business activity following a period of decline, possibly reflecting market or operational improvements.

Working Capital Turnover

The working capital turnover ratio fluctuates considerably, ranging from a low of 3.2 in 2020 to a high of 6.6 in 2018. The ratio doubled from 3.39 in 2017 to 6.6 in 2018, coinciding with the sharp fall in working capital levels during that year, indicating more efficient use of working capital to generate revenue. Subsequently, the ratio decreased in 2019 to 3.44 and hovered slightly above 3 in 2020 before rising to 4.98 in 2021. The variation reflects changes in the relationship between working capital and revenues, with the highest efficiency observed in 2018 and a partial recovery in 2021.

Overall, the period is characterized by fluctuating working capital levels and turnover ratios, with revenue demonstrating a decline and subsequent recovery. The high variability in working capital turnover suggests shifting operational efficiency in utilizing current assets and liabilities to support sales generation.

The analysis of the financial ratios over the five-year period reveals notable trends in inventory management. The inventory turnover ratio shows a general decline from 6.81 in 2017 to 5.01 in 2021. This decreasing trend indicates that the company is turning over its inventory less frequently each year, which may suggest slowing sales or increased inventory holding.

Complementing this, the average inventory processing period exhibits an increasing trend, starting at 54 days in 2017 and rising to 73 days in 2021. A longer processing period signifies that inventory remains in stock for more time before being sold or used.

Inventory Turnover Ratio

Decreased from 6.81 to 5.01 between 2017 and 2021, indicating slower inventory movement.

Average Inventory Processing Period

Increased from 54 days to 73 days over the same period, representing a longer duration to clear inventory.

The inverse relationship between these two metrics consistently aligns with standard inventory analysis principles, where a lower turnover ratio corresponds to a higher inventory processing period. This pattern may reflect potential challenges in inventory management efficiency, possibly due to changing market conditions, demand fluctuations, or operational issues impacting the speed of inventory turnover. Further investigation would be prudent to determine the underlying causes and assess the impact on working capital and profitability.

The analysis of receivables-related metrics over the five-year period reveals notable trends in the management of accounts receivable.

Receivables turnover ratio

The ratio increased steadily from 5.45 in 2017 to 5.73 in 2019, indicating an improvement in the efficiency of collecting receivables during this period. However, a decline is observed in 2020, where the ratio dropped to 5.02, followed by a slight recovery to 5.09 in 2021. This suggests some challenges in collections during the pandemic year, with only a partial rebound afterward.

Average receivable collection period

This measure decreased from 67 days in 2017 to 64 days by 2019, consistent with the increasing turnover ratio and implying quicker collections. Conversely, this period extended to 73 days in 2020 and then remained relatively high at 72 days in 2021. The increase corroborates the reduced turnover, reflecting slower receivable collections amid difficult market conditions or operational disruptions during those years.

Overall, the data indicates that the efficiency of receivables management improved steadily up to 2019 but deteriorated in 2020 and 2021, potentially impacted by external factors affecting customer payment behavior or internal collection processes. The partial recovery in turnover ratio without a corresponding significant decrease in collection days suggests that while efforts to improve collections resumed, the pace at which customers settle their receivables remained slower than pre-2020 levels.

Inventory Processing Period

The average inventory processing period exhibits a fluctuating trend over the observed years. It slightly increased from 54 days in 2017 to 56 days in 2018, then decreased to 52 days in 2019. However, a noticeable increase occurred in 2020 and continued substantially into 2021, reaching 59 and then 73 days respectively. This indicates a lengthening in the time taken to process inventory, which may suggest slower inventory turnover or supply chain challenges in later years.

Receivable Collection Period

The average period to collect receivables remains relatively stable over the timeframe but shows a mild increase toward the end. The collection period decreased slightly from 67 days in 2017 to 64 days by 2019, then increased to 73 days in 2020 before a minor decrease to 72 days in 2021. This pattern reflects some variability but generally suggests a marginal extension in the time taken to collect receivables in recent years.

Operating Cycle

The operating cycle, which sums the inventory processing and receivable collection periods, maintains a consistent level of around 120 days for the first three years but then rises significantly thereafter. Starting at 121 days in 2017 and 2018, it slightly decreased to 116 days in 2019. However, the cycle lengthened considerably in 2020 to 132 days and further to 145 days in 2021. This increasing trend signifies a longer cash conversion cycle, potentially impacting liquidity by delaying the time from investment in inventory to cash collection.

Payables Turnover

The payables turnover ratio exhibited an initial upward trend from 14.08 in 2017 to a peak of 17.35 in 2019. This increase indicates an improvement in the frequency with which the company paid off its suppliers during that period. However, after 2019, the ratio declined to 13.81 in 2020, followed by a slight recovery to 14.51 in 2021. This fluctuation suggests a deceleration in payment efficiency during 2020, potentially reflecting operational or liquidity adjustments, with a partial rebound the following year.

Average Payables Payment Period

The number of days to pay payables demonstrated a decreasing trend from 26 days in 2017 to a low of 21 days in 2019, reflecting a quicker settlement of obligations consistent with the increased payables turnover ratio. However, the payment period then increased to 26 days in 2020 and slightly improved to 25 days in 2021. This reversal corresponds with the lower payables turnover in those years and suggests a lengthening in the time taken to pay suppliers, which may imply adjustments in cash flow management or response to external pressures during the latter period.

Overall Insights

The data indicate that the company improved its payables management efficiency up to 2019, paying suppliers more promptly and increasing the turnover rate. The subsequent period from 2020 onwards shows a modest decline in this efficiency, with payment periods lengthening and turnover decreasing. These shifts are potentially reflective of changing operational conditions or strategic cash management decisions influenced by external economic factors.

Inventory Processing Period

The average inventory processing period displayed a fluctuating yet generally increasing pattern over the five-year period. It began at 54 days in 2017, briefly decreased to 52 days in 2019, then rose significantly to 73 days by the end of 2021, indicating a longer time to process inventory in recent years.

Receivable Collection Period

The average receivable collection period remained relatively stable but exhibited a slight increase over time. Starting at 67 days in 2017, it showed a gradual decrease until 2019, reaching 64 days, but then increased again to 72 days by 2021, suggesting modest elongation in the time taken to collect receivables.

Payables Payment Period

The average payables payment period showed minor fluctuations but stayed within a narrow range. It decreased from 26 days in 2017 to a low of 21 days in 2019, followed by a small increase to 25 days by 2021. This pattern reflects relative consistency in the timing of payments to suppliers.

Cash Conversion Cycle

The cash conversion cycle exhibited an overall upward trajectory, indicating a lengthening of the net time between cash outflows and inflows. The cycle increased from 95 days in 2017 to 120 days in 2021, with notable rises particularly after 2019. This trend suggests a growing period during which cash is tied up in operations.