Northrop Grumman Corp. (NYSE:NOC)

The analysis of the quarterly financial ratios over the observed periods reveals several noteworthy trends in operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio demonstrates relative stability with values ranging mostly between 26 and 38 times per period from early 2019 through 2023. There is slight volatility, with peaks around March 2021 (38.63) and troughs near March 2023 (26.48). This indicates an overall consistent speed in inventory movement, with occasional fluctuations likely driven by operational changes or market conditions.

Receivables Turnover

Receivables turnover ratios show fluctuations across the periods, with notable dips such as 14.57 in June 2019 and 14.64 in September 2022, contrasted by higher values like 25.52 in March 2020 and 24.22 in March 2023. The variations suggest changing effectiveness in collecting receivables, possibly influenced by customer payment behaviors or credit policies.

Payables Turnover

Payables turnover ratios move within a moderate range, generally between 10 and 16 times per period. There is an observable increase towards the end of 2020 (16.24) followed by a gradual decline and stabilization around 11-13 in later periods. The data implies a relatively steady approach in managing payables, with some periods of faster payment.

Working Capital Turnover

This metric exhibits significant volatility. Early data from 2019 shows higher turnovers (e.g., 27.05 in March 2020), dropping to lows below 10 during parts of 2020 and 2021, before sharply rising to 40.62 in March 2023. Such fluctuations may reflect changes in operating efficiency or the structure of working capital components over time.

Average Inventory Processing Period

The average inventory processing period remains notably stable, mostly around 10 to 14 days throughout the entire dataset. Minor increases and decreases do not suggest any material change in inventory handling speed.

Average Receivable Collection Period

There is more variability in the receivable collection period, with days oscillating from as low as 14 to as high as 25 days. Periods of longer collection times, such as June 2019 and June 2022, can impact liquidity and cash flow.

Operating Cycle

The operating cycle, which sums inventory processing and receivable collection periods, varies between 24 and 37 days. The trend generally reflects the combined fluctuations seen in inventory and receivables, with some shortening observed around 2021 and lengthening at other times.

Average Payables Payment Period

The payables payment period ranges from about 22 to 34 days, indicating moderate variability in the timing of payments to suppliers. There appears to be a slight extension of payment terms toward the later periods, with higher days in late 2022 and early 2023 compared to early 2019.

Cash Conversion Cycle

This critical metric oscillates around zero, with values moving from negative (e.g., -6 days) to positive single digits. Negative values indicate periods where payables are managed to finance the operating cycle effectively, while positive values may reflect a temporary cash outflow. The lack of a sustained trend suggests that cash conversion dynamics are influenced by short-term operational and financial strategies.

Overall, the data indicates consistent operational performance in inventory handling, with more pronounced fluctuations in receivables and working capital efficiency. The oscillating cash conversion cycle points to active management of liquidity and payment timing, reflecting adaptation to changing operational or market conditions over time.

The provided financial data reveals several noteworthy trends over the analyzed periods. Cost of sales generally exhibits an upward trajectory with some fluctuations across quarters. Starting at $5,176 million in March 2018, the cost of sales rises steadily, peaking at $8,209 million in December 2022 before declining to $7,316 million in March 2023. This pattern suggests increasing operational costs over the years with a notable surge towards the end of 2022.

Inventoried costs, net, mirror a similar trend, increasing from $435 million in March 2018 to a peak of $1,115 million in March 2023. The gradual climb indicates a rising investment or accumulation in inventory over time, reflecting possible growth in production or stockpiling activities. The inventory levels fluctuate somewhat within quarters but exhibit a clear long-term upward movement.

The inventory turnover ratio, available from September 2018 onwards, fluctuates between approximately 26 and 38 times per year. It starts at an elevated level of 35.63 in September 2018, declining to a low of 26.48 by March 2023. This downward trend in turnover ratio suggests a slower rate of inventory movement relative to sales, potentially indicating increased inventory holding periods in recent quarters. The ratio shows moderate quarter-to-quarter variability but an overall declining tendency since mid-2021, implying that inventory management efficiency may have decreased over time.

Cost of Sales

Displayed a long-term increasing trend, rising from $5,176 million to a peak of $8,209 million over the analyzed timeframe, with a slight decrease in the final quarter.

Inventoried Costs, Net

Increased consistently, more than doubling from $435 million to $1,115 million, reflecting growing inventory investment.

Inventory Turnover Ratio

Experienced a downward trend from approximately 36 to 26 times, suggesting deteriorating efficiency in inventory utilization or slower sales relative to inventory held.

In summary, the data indicates rising cost pressures coupled with increasing inventory accumulation. The reduction in inventory turnover ratio further highlights potential challenges in converting inventory into sales efficiently. These trends warrant attention to inventory management and cost control strategies to maintain operational effectiveness and profitability.

The quarterly financial data reveals several noteworthy trends and fluctuations across the reported periods.

Sales

Sales figures demonstrate a general upward trajectory with some volatility. Starting at 6,735 million USD in March 2018, sales increased steadily through 2018 and 2019, reaching a peak of 10,212 million USD in December 2020. After this peak, sales displayed a declining pattern into 2021 and early 2022, followed by a rebound towards the end of 2022 and early 2023, although the March 2023 figure (9,301 million USD) remained below the December 2020 maximum.

Accounts Receivable, Net

Accounts receivable levels fluctuated considerably over the reported quarters. Initially at 1,241 million USD in March 2018, the figure experienced several peaks and troughs; notable peaks occurred in March 2019 (2,166 million USD), March 2020 (2,136 million USD), and June 2022 (2,387 million USD). Corresponding troughs appeared intermittently, such as December 2019 (1,326 million USD) and December 2020 (1,501 million USD). This volatility indicates varying patterns in credit sales or collection efficiency over time.

Receivables Turnover Ratio

The receivables turnover ratio, available from September 2018 onward, shows considerable variations. Initially high at 20.78, the ratio declined to a low of 14.57 in December 2018, suggesting slower collections despite increasing sales. The ratio improved to levels exceeding 20 in select quarters such as December 2019 (25.52), December 2020 (24.52), and December 2021 (23.42), suggesting improved collection efficiency during these periods. However, dips below 15 in December 2022 (14.64) indicate periods of slower turnover.

Overall, sales growth appears positive but with intermittent declines and recoveries. The accounts receivable figures' volatility and the fluctuating receivables turnover ratio suggest variability in credit management and collection processes. Periods of improved turnover ratios generally coincide with stronger sales quarters, reflecting more efficient receivables management in such times.

The cost of sales demonstrates an overall upward trend from March 2018 to December 2020, rising from approximately 5,176 million USD to 8,122 million USD. Following this peak, a decline is observed through 2021, with values decreasing to around 6,786 million USD by September 2021, before rising again towards the end of 2022 and early 2023, reaching 7,316 million USD in March 2023. This pattern suggests periods of increased operational activity followed by a moderate contraction and a subsequent rebound in cost of sales.

Trade accounts payable fluctuates throughout the periods but shows a general upward movement over the entire timeframe. Starting from 1,395 million USD in March 2018, the value peaks multiple times, notably reaching 2,587 million USD in December 2022 before slightly declining to 2,136 million USD in March 2023. These variations indicate changes in short-term liabilities, possibly reflecting shifting payment terms, purchasing patterns, or supplier negotiations.

The payables turnover ratio is only available starting from December 2018. It exhibits variability, with the highest ratio recorded in March 2021 at 16.24 and the lowest in March 2020 at 11.94. Generally, the ratio fluctuates between approximately 11 and 16, without a clear consistent trend. Higher ratios imply quicker payment to suppliers, while lower ratios indicate slower turnover. The increase around March 2021 could suggest improved efficiency in accounts payable management during that period, followed by a return to more moderate turnover rates in subsequent quarters.

The analysis of the quarterly financial data reveals several notable trends in working capital, sales, and working capital turnover over the observed periods.

Working Capital

Working capital exhibits significant volatility throughout the timeline. Starting from a high of 9,742 million US dollars in the first quarter of 2018, there is a sharp decline to 1,889 million by the second quarter of 2018. Following this drop, working capital shows fluctuations with intermittent increases and decreases. Notably, it peaks again at 5,764 million in the fourth quarter of 2020 before gradually declining to a low of 901 million by the second quarter of 2023. The recent quarters indicate a continued low level, with a slight recovery to 2,327 million in the first quarter of 2023 from the earlier trough.

Sales

Sales maintain a relatively stable upward trajectory over the analyzed quarters. Beginning at 6,735 million US dollars in the first quarter of 2018, sales generally increase with minor fluctuations, reaching a peak at 10,212 million in the fourth quarter of 2020. After this peak, sales experience some variability but remain within a high range, oscillating between roughly 8,639 million and 10,033 million up to the first quarter of 2023. This trend suggests steady revenue generation with seasonal or cyclical variations.

Working Capital Turnover

The working capital turnover ratio shows substantial inconsistency, with a pattern largely influenced by fluctuations in working capital rather than sales. Initially, the ratio is high at 21.4 in the first quarter of 2019, then generally declines, reaching a low of 6.38 in the fourth quarter of 2020. Following this low, turnover increases moderately but then experiences a marked rise to 40.62 in the first quarter of 2023, the highest ratio observed in the dataset. This sharp spike in turnover ratio corresponds to the period of minimal working capital observed, indicating higher efficiency in using working capital to generate sales during this time, or potential working capital constraints.

Overall, the data suggest the company has experienced fluctuating liquidity as indicated by working capital changes. Sales have grown steadily over the period, with peaks and troughs likely influenced by external factors or business cycles. The working capital turnover ratio's variability highlights changes in asset management efficiency, potentially driven by shifting working capital levels. The recent high turnover, amid low working capital, may warrant further investigation to assess sustainability and operational risks.

Inventory Turnover Trend

The inventory turnover ratio demonstrates variability over the observed period. Starting from a notable value of 35.63 in March 2019, it experienced a slight decline reaching a low near 31.65 to 31.83 in mid-2019. The ratio then showed fluctuations around the low 30s through 2019 and 2020, with a notable peak at 38.63 in March 2021, indicating a period of more efficient inventory management or increased sales velocity. Following this peak, the ratio generally declined, reaching 26.48 by March 2023. This decline suggests a gradual reduction in the frequency of inventory cycles, potentially reflecting changes in sales pace or inventory strategy.

Average Inventory Processing Period Analysis

The average inventory processing period, measured in days, shows an inverse relationship to the inventory turnover ratio, with the period stabilizing between 10 and 12 days for most quarters. Early in the dataset, the period hovered around 11 days, dipping to 9 days in March 2021, coinciding with the peak in inventory turnover ratio. After this, the processing period increased, reaching 14 days by March 2023. This lengthening interval indicates slower inventory movement and potentially increased holding times.

Overall Insights

Over the five-year timeframe, the data reveals a cyclical pattern in inventory management efficiency, highlighted by peaks and troughs in turnover and processing period metrics. The peak in turnover and corresponding dip in processing period during early 2021 may reflect temporary operational improvements or demand spikes. The subsequent trends toward a lower turnover ratio and higher processing period by early 2023 suggest a softening in inventory velocity, which may warrant further investigation to optimize working capital and inventory control practices.

Receivables Turnover Ratio

The receivables turnover ratio exhibited considerable fluctuations over the observed periods. Starting from a high point of 20.78 in March 2019, the ratio declined to 14.57 by June 2019, indicating a slowdown in the efficiency of receivables collection during that quarter. It then rebounded to peak levels such as 25.52 in March 2020 and 24.52 in March 2021, suggesting periods of more effective credit management. However, the pattern reveals notable volatility, with values oscillating between approximately 14.5 and 25.5. The most recent data point in March 2023 shows a decline to 18, lower than the peaks but comparable to some intermediate quarters in previous years.

Average Receivable Collection Period

The average receivable collection period displayed an inverse relationship with the receivables turnover ratio, as anticipated. Starting at 18 days in March 2019, the number of days increased to 25 in June 2019, coinciding with the dip in turnover ratio, indicating slower collections. A marked improvement followed with the period dropping to 14 days in March 2020, aligning with the peak turnover ratio that same quarter. Across subsequent quarters, the collection period generally fluctuated between 15 and 25 days, with short-term improvements often succeeded by increases in collection days, signaling irregularities in collection efficiency. The latest measurement in March 2023 is 20 days, reflecting a moderate collection period relative to the observed historical range.

Overall Insights

The data indicate a cyclical pattern in receivables management effectiveness, influenced possibly by seasonal or operational factors. Higher turnover ratios consistently correspond with shorter average collection periods, confirming the expected inverse correlation. Periods of reduced collection efficiency are evident in mid-2019 and parts of 2022, where turnover ratios decreased and collection periods extended. Conversely, early 2020 and 2021 showed stronger credit collection performance. The variability in metrics suggests opportunities for more consistent receivables management to stabilize cash flow timing. Recent figures point to a moderate level of efficiency, neither reaching previous peaks nor declining to historical lows.

Average inventory processing period

The average inventory processing period demonstrated a fluctuating but generally stable trend over the examined quarters. Initially recorded at 10 days, it increased slightly to 12 and 11 days in subsequent periods, maintaining around 11 days for the majority of the timeline. From early 2021, the period consistently hovered around 9 to 11 days, with a slight upward movement to 12-14 days observed in the final quarters. This indicates a relatively steady management of inventory turnover, with occasional modest increases in the time inventory remains in processing.

Average receivable collection period

The average receivable collection period exhibited more variability over the quarters. Starting from 18 days, it showed significant oscillations, peaking at 25 days in mid-2019 and again in mid-2022, while reaching lows near 14-15 days in early 2020 and multiple other quarters. Although there is no clear linear trend, the data suggests occasional challenges in receivables collection, with periods of longer collection times interspersed with improved turnovers. The fluctuations suggest varying efficiency in credit management or changes in customer payment behaviors across time.

Operating cycle

The operating cycle, representing the sum of inventory processing and receivables collection periods, reflected combined trends of the two components. It ranged from 24 to 37 days, with initial increases from 28 to 37 days during 2018 through mid-2019, lowering to approximately 24-31 days during 2020 and early 2021. Subsequently, the cycle increased again, reaching up to 37 days in mid-2022 before slightly declining towards the end of the observed period. This pattern suggests overall cyclical variations in working capital management efficiency, impacted by shifts in inventory turnover and receivables collection practices.

Payables Turnover

The payables turnover ratio is available starting from the period ending March 31, 2019. It initially shows a rising trend from 10.68 to a peak of 16.24 in the quarter ending March 31, 2021. After this peak, the ratio generally declines over subsequent periods, reaching a low of 11.26 by March 31, 2023. This pattern suggests an initial improvement in the efficiency with which payables are managed, followed by a gradual slowdown in the turnover of payables thereafter.

Average Payables Payment Period

The average payment period shows a decreasing trend from 34 days in March 2019 to a low of 22 days by December 2020. This indicates a shortening in the time taken to pay suppliers, reflecting possibly improved liquidity or changes in payment policies. Post December 2020, the payment period gradually increases again, reaching 32 days by March 2023, which suggests a slight relaxation in payment speed or longer credit terms being utilized.

Overall Relationship Between Metrics

There is an inverse relationship between the payables turnover ratio and the average payment period, as expected. When the payment period shortens (fewer days), the turnover ratio improves (higher value), and when the payment period lengthens, the turnover ratio drops. This linkage confirms consistent internal dynamics in payables management during the timeframe.

Insights

The data indicates a period of enhanced efficiency in managing payables through early 2021, followed by a return toward more moderate levels in the following two years. The fluctuations could be driven by operational adjustments, supplier negotiations, or broader market conditions influencing cash flow and working capital management. The final observations of March 2023 suggest a cautious approach with moderately slower payments compared to the previous peak periods.

Average Inventory Processing Period

The average inventory processing period shows a generally stable pattern, fluctuating between 9 and 14 days from March 2019 to March 2023. Initial data points from early 2019 indicate a range of 10 to 12 days, maintaining around 11 days for several quarters. A noticeable increase occurs towards the end of 2022 and early 2023, rising from 12 to 14 days, which may suggest a slight slowdown in inventory turnover during this period.

Average Receivable Collection Period

The receivable collection period exhibits volatility across the analyzed quarters. Starting at 18 days in March 2019, it escalates to a peak of 25 days by June 2019, then declines to a low of 14 days in March 2020. Subsequently, it stabilizes around the high teens and low twenties, reflecting some inconsistency in receivables management. Notably, there is a repeated pattern of spikes to 25 days in mid-2022 and fluctuations in earlier quarters, suggesting periods of slower collections offset by more efficient recoveries.

Average Payables Payment Period

The average payables payment period generally decreases from 34 days in March 2019 to a range between 22 and 32 days throughout the subsequent quarters. It briefly dips to 22 days in March 2021 but climbs back to around 30 days by late 2022. This indicates an effort to manage payable timings more tightly in some periods, with a return to longer payment durations towards the end of the observed period.

Cash Conversion Cycle

The cash conversion cycle fluctuates between negative and positive values, indicating changing efficiencies in working capital management. Negative values such as -6 days in March 2019 and March 2020 suggest that payables are being paid after sales have been collected and inventories processed, which is a positive liquidity indicator. However, there are positive spikes reaching up to 9 days in mid-2022, implying occasional delays in cash recovery relative to outflows. Overall, the cycle demonstrates variability but generally remains close to zero, reflecting a balanced operational cash flow management with some periods of slight improvement or deterioration.