Northrop Grumman Corp. (NYSE:NOC)

The analysis of the financial ratios and related metrics over the five-year period reveals several notable trends and fluctuations in operational efficiency and working capital management.

Inventory Turnover

The inventory turnover ratio shows variability, beginning at 35.63 in 2018 and peaking at 38.63 in 2020, followed by a decline to 29.78 in 2022. This indicates that the company generally maintained strong inventory management with a slightly slower turnover in the most recent year.

Receivables Turnover

The receivables turnover ratio increased markedly from 20.78 in 2018 to a high of 25.52 in 2019. It then stabilized around 24.2-24.5 through 2020 to 2022, suggesting consistent effectiveness in collecting receivables over the last three years.

Payables Turnover

The payables turnover ratio rose from 10.68 in 2018 to a peak of 16.24 in 2020, indicating faster payment to suppliers during that period. Subsequently, it declined to 11.26 by 2022, reflecting a longer payment period compared to the peak year.

Working Capital Turnover

This ratio showed significant volatility, increasing from 21.4 in 2018 to 27.05 in 2019, then plunging sharply to 6.38 in 2020 before recovering to 40.62 in 2022. The low value in 2020 suggests reduced efficiency or increased working capital investment that year, while the strong rebound in 2022 indicates improved utilization.

Average Inventory Processing Period

The average days inventory was held varied between 9 and 12 days, with the shortest period in 2020 (9 days) and the longest in 2022 (12 days). This aligns with the inventory turnover data, showing slightly slower inventory movement recently.

Average Receivable Collection Period

The days to collect receivables decreased from 18 days in 2018 to 14 days in 2019, then stabilized at approximately 15 days from 2020 through 2022, reflecting steady collection efficiency after initial improvement.

Operating Cycle

The operating cycle, combining inventory processing and receivables collection periods, decreased from 28 days in 2018 to around 24-25 days in the 2020-2021 period, with a slight increase to 27 days in 2022. This indicates a modest overall improvement in the cycle with a slight recent extension.

Average Payables Payment Period

The average payables payment days shortened significantly from 34 days in 2018 to 22 days in 2020, suggesting quicker payments to suppliers during that time. It then lengthened again to 32 days by 2022, indicating more extended payment terms or delayed payments in recent years.

Cash Conversion Cycle

The cash conversion cycle fluctuated around slightly negative values, starting at -6 days in 2018 and 2019, rising to 2 days in 2020, and then improving back to -5 days by 2022. A negative cash conversion cycle generally reflects efficient cash management, where payables are settled after inventory is sold and receivables collected. The positive value in 2020 suggests a temporary lag in this efficiency.

In summary, the data reflects a company with generally strong operational efficiency and effective working capital management, despite some volatility around 2020 likely influenced by external or internal factors. The recovery of working capital turnover and cash conversion cycle metrics by 2022 suggests a return to more optimal financial performance conditions.

The financial data for the company over the period from December 31, 2018, through December 31, 2022, reveals several noteworthy trends in cost of sales, inventoried costs, and inventory turnover.

Cost of Sales

The cost of sales demonstrates an overall upward trajectory from 2018 to 2022. It increased steadily from $23,304 million in 2018 to $29,321 million in 2020. There was a slight decline in 2021, dropping to $28,399 million, before rising again to $29,128 million in 2022. This pattern indicates a broad growth in expenses related to production or procurement, with minor fluctuations possibly due to operational adjustments or market conditions in 2021.

Inventoried Costs, Net

Inventoried costs have generally increased over this period, moving from $654 million in 2018 to $978 million by the end of 2022. Although there was a minor decrease between 2019 and 2020, the overall trend is upward. This increase reflects a growing investment in inventory, which may be associated with higher production levels or strategic stockpiling.

Inventory Turnover

Inventory turnover shows a declining trend from 2018 to 2022. It began at a high of 35.63 in 2018 and fluctuated slightly in the following years, reaching a peak of 38.63 in 2020 before decreasing more notably in 2021 and 2022 to 29.78. This decline indicates that the company is turning over its inventory less frequently, which could suggest slower sales relative to inventory levels or increased inventory holdings.

In summary, the data illustrates growing costs associated with sales and inventory holdings, while efficiency in converting inventory to sales, as measured by inventory turnover, has diminished over recent years. This combination could signal changes in demand patterns, supply chain strategies, or other operational factors affecting inventory management and cost control.

Sales Trends

Sales have exhibited an overall upward trend from 2018 to 2022, increasing from $30,095 million in 2018 to $36,602 million in 2022. Growth was steady with a notable peak in 2020 at $36,799 million. There was a slight decline in 2021 to $35,667 million before recovering marginally in 2022. This pattern indicates stable revenue generation with minor fluctuations.

Accounts Receivable, Net

The net accounts receivable values have remained relatively stable throughout the period, with figures ranging from $1,326 million in 2019 to $1,511 million in 2022. The slight increase toward the end of the period suggests a modest rise in credit extended to customers or timing differences in collections, though overall levels have not changed drastically.

Receivables Turnover Ratio

The receivables turnover ratio shows a peak in 2019 at 25.52 and then a gradual decline through to 2022, ending at 24.22. Despite the decrease, the ratio remains relatively high and stable, indicating consistent efficiency in collecting receivables. The slight downward trend may reflect a marginal lengthening in collection periods or changes in credit policies.

Summary of Financial Position

The data presents a stable and growing sales profile coupled with consistent management of receivables. The marginal variations in accounts receivable and turnover ratios suggest efficient working capital management without significant deterioration. The company appears to maintain solid operational performance and credit control over the analyzed period.

Cost of Sales

The cost of sales demonstrates an overall upward trend from 2018 through 2022, increasing from $23,304 million to $29,128 million. There was consistent growth between 2018 and 2020, with a peak in 2020 at $29,321 million. However, a slight decline was observed in 2021, dropping to $28,399 million, before rising again in 2022 to near previous high levels. This indicates fluctuating production or procurement costs, but generally increasing expenditure in this area over the five-year span.

Trade Accounts Payable

The trade accounts payable figures show some variability over the period. Starting at $2,182 million in 2018, the balance increased modestly in 2019, followed by a significant decrease in 2020 to $1,806 million. Subsequently, the amount rose substantially in 2021 and continued to increase in 2022, reaching $2,587 million, which represents the highest value in the dataset. This pattern may reflect shifts in payment policies or supplier negotiations affecting the timing and magnitude of payables.

Payables Turnover Ratio

The payables turnover ratio experienced fluctuations during the five-year period. It started at 10.68 in 2018, increasing steadily to a peak of 16.24 in 2020, suggesting a faster rate of paying off suppliers during that year. This was followed by a decline to 12.93 in 2021 and a further decrease to 11.26 in 2022. The initial rise indicates an improvement in liquidity or a strategy to pay suppliers more quickly, whereas the subsequent decline may imply a relaxation of such practices or changes in cash management strategy.

Working Capital

The working capital exhibited notable fluctuations over the observed period. Starting at US$ 1406 million in 2018, it decreased slightly to US$ 1251 million in 2019. In 2020, there was a significant increase, with working capital rising sharply to US$ 5764 million. This was followed by a considerable decline in 2021 to US$ 2896 million and a further drop to US$ 901 million in 2022. This pattern indicates high volatility in the company's short-term asset management and liquidity position.

Sales

Sales showed a generally upward trend from 2018 to 2020, increasing from US$ 30,095 million to US$ 36,799 million. In 2021, sales experienced a slight decrease to US$ 35,667 million but rebounded mildly in 2022 to US$ 36,602 million, nearly reaching the 2020 peak. Overall, sales remained relatively stable with moderate growth over the period.

Working Capital Turnover

The working capital turnover ratio exhibited considerable variation. It improved from 21.4 in 2018 to 27.05 in 2019, indicating increased efficiency in utilizing working capital to generate sales. In 2020, the ratio declined sharply to 6.38, reflecting the surge in working capital that year. Subsequently, the ratio almost doubled in 2021 to 12.32 and surged dramatically to 40.62 in 2022, corresponding with the significant reduction in working capital. The elevated turnover ratio in 2022 suggests a highly efficient use of working capital relative to sales but also points to potentially constrained short-term liquidity resources.

Insights

The data reveals considerable volatility in working capital despite relatively stable sales, suggesting fluctuations in the company's operational liquidity management. The sharp rise and subsequent declines in working capital over the years might reflect strategic decisions regarding operational funding or changes in current asset and liability management. The contrasting trends between working capital and its turnover ratio highlight changes in working capital efficiency, which improved recently but could indicate pressures on liquidity. Monitoring these metrics alongside cash flow and other liquidity indicators would be advisable for a comprehensive assessment.

Inventory Turnover

The inventory turnover ratio exhibits fluctuations over the five-year period. Beginning at 35.63 in 2018, the ratio declined moderately to 33.95 in 2019, indicating a slight slowdown in the rate at which inventory was sold and replaced. In 2020, inventory turnover improved significantly to 38.63, suggesting a more efficient inventory management or increased sales activity during that year. However, this upward trend was not sustained, as the ratio fell again to 35.02 in 2021 and further dropped to 29.78 in 2022. The overall trend from 2018 to 2022 points to a general decrease in inventory turnover efficiency by the end of the period.

Average Inventory Processing Period

The average inventory processing period, measured in number of days, inversely reflects the inventory turnover ratio. It started at 10 days in 2018, increased slightly to 11 days in 2019, and then shortened to 9 days in 2020, correlating with the peak in inventory turnover during that year. Following this improvement, the processing period reverted to 10 days in 2021, then extended notably to 12 days in 2022 - the longest period observed in the data. This suggests that inventory was held longer before being sold or used, which aligns with the declining inventory turnover ratio in the latter years.

Overall Insight

The data indicate that inventory management efficiency improved in 2020, as evidenced by higher turnover and shorter processing duration. However, the subsequent two years showed a decline in efficiency, with inventory being held for longer periods and turnover ratios decreasing. This pattern may suggest challenges in sales flow, supply chain, or inventory control that emerged after 2020, potentially impacting working capital and operational performance.

Receivables Turnover

The receivables turnover ratio demonstrates a notable increase from 20.78 in 2018 to a peak of 25.52 in 2019, indicating an improvement in the efficiency of collection relative to sales or revenue during that period. Following this peak, the ratio experiences a slight decline over the subsequent three years, settling around 24.22 by the end of 2022. Despite the decrease from the 2019 high, the turnover remains elevated compared to the 2018 baseline, suggesting the company has generally maintained a high level of efficiency in managing receivables.

Average Receivable Collection Period

The average receivable collection period decreases from 18 days in 2018 to 14 days in 2019, reflecting a swifter collection process. From 2019 onward, the collection period stabilizes at approximately 15 days, indicating consistent performance in converting receivables into cash. This stability corresponds with the relatively stable receivables turnover ratio in the later years, confirming sustained effectiveness in credit and collections management.

Overall Trend and Insights

The upward trend in receivables turnover ratio from 2018 to 2019, coupled with the reduction in average collection days, suggests significant improvements in working capital management during that timeframe. Although the receivables turnover ratio slightly declines through 2020 to 2022, it remains within a narrow range, indicating continued operational consistency in accounts receivable management. The stability in the average collection period further confirms this consistency. The data collectively reflects effective control over receivables, contributing positively to liquidity and cash flow management.

Average Inventory Processing Period

The average inventory processing period exhibited minor fluctuations throughout the observed years. Starting at 10 days in 2018, it experienced a slight increase to 11 days in 2019, followed by a decrease to 9 days in 2020. Subsequently, it rose back to 10 days in 2021 and increased further to 12 days in 2022. This indicates some variability in inventory turnover efficiency, with a notable increase in inventory days in the most recent year, potentially suggesting slower inventory processing.

Average Receivable Collection Period

The average receivable collection period demonstrated relative stability with a slight initial improvement. Starting at 18 days in 2018, it decreased significantly to 14 days in 2019, then slightly increased to 15 days in 2020 and remained consistent at 15 days through 2021 and 2022. This pattern suggests more efficient receivables management beginning in 2019, maintaining a steady collection period in subsequent years.

Operating Cycle

The operating cycle showed a general trend of reduction followed by a slight increase. Beginning at 28 days in 2018, it declined to 25 days in 2019 and further to 24 days in 2020. However, it increased again to 25 days in 2021 and 27 days in 2022. This cyclical movement corresponds with changes in both inventory processing and receivable collection periods. Despite the recent increase, the operating cycle remains slightly shorter than the initial 2018 value, indicating moderately improved overall operational efficiency over the five-year period.

Payables Turnover

The payables turnover ratio exhibits a fluctuating trend over the analyzed period. Starting at 10.68 in 2018, the ratio increased significantly to 11.94 in 2019, reaching a peak of 16.24 in 2020. This spike suggests a notably faster rate of payables processing during that year. However, the ratio then declined to 12.93 in 2021 and further to 11.26 in 2022, indicating a slowdown in turnover pace compared to the 2020 peak but still remaining above the 2018 baseline. Overall, the pattern suggests changes in the company's payment cycle, with the highest efficiency in managing payables observed in 2020.

Average Payables Payment Period

The average payables payment period, expressed in days, generally mirrors the inverse movement of the payables turnover ratio over the same timeframe. The payment period decreased from 34 days in 2018 to 31 days in 2019, then sharply dropped to 22 days in 2020, reflecting a quicker payment process that correlates with the higher turnover ratio seen that year. Subsequently, the period lengthened to 28 days in 2021 and further to 32 days in 2022, signaling a relaxation in payment speed. These adjustments correspond with the diminishing payables turnover ratio post-2020, demonstrating a reversion to longer payment terms though still shorter than the initial 2018 figure.

Average Inventory Processing Period

The average inventory processing period experienced fluctuations over the five-year span. It started at 10 days in 2018, slightly increased to 11 days in 2019, then decreased to 9 days in 2020. The period returned to 10 days in 2021 before rising to 12 days in 2022. Overall, this indicates some variability in inventory management efficiency, with a noticeable increase in 2022 compared to previous years.

Average Receivable Collection Period

The average receivable collection period showed a general decline initially, moving from 18 days in 2018 down to 14 days in 2019. However, from 2019 onwards, the period stabilized around 15 days through 2020 to 2022. This suggests improved collection efficiency between 2018 and 2019, followed by consistent performance in subsequent years.

Average Payables Payment Period

The average payables payment period demonstrated a decreasing trend from 34 days in 2018 to a low of 22 days in 2020. Thereafter, it increased again to 28 days in 2021 and further to 32 days in 2022. This indicates an overall reduction in the time taken to pay suppliers during the first three years, followed by a gradual extension in payment duration through 2021 and 2022.

Cash Conversion Cycle

The cash conversion cycle fluctuated within a narrow range throughout the period. It was negative six days in both 2018 and 2019, worsened to positive two days in 2020, indicating a slight delay in cash recovery. It then improved again to negative three days in 2021 and negative five days in 2022. A negative cash conversion cycle suggests that the company was able to collect cash from customers before paying its suppliers, maintaining effective working capital management despite some yearly variations.