Parker-Hannifin Corp. (NYSE:PH)

Inventory Turnover

The inventory turnover ratio showed a fluctuation over the analyzed periods. It increased from 5.93 in 2017 to a peak of 6.64 in 2018, then gradually declined to 5 by 2021 before a slight improvement to 5.14 in 2022. This indicates some variability in inventory management efficiency, with slower turnover in recent years compared to 2018.

Receivables Turnover

The receivables turnover ratio exhibited a generally positive trend until 2020, rising from 6.23 in 2017 to 7.39 in 2020. However, it declined to 6.57 in 2021 before a moderate recovery to 6.77 in 2022. This pattern suggests an initially improving ability to collect receivables which weakened temporarily but showed signs of stabilization subsequently.

Payables Turnover

Payables turnover followed a variable trend, increasing steadily from 7.07 in 2017 to a high of 9.25 in 2020, implying quicker payment of payables during this period. This was followed by a significant decline to 6.27 in 2021 and a small increase to 6.57 in 2022, indicating a loosening in payment speed after 2020.

Working Capital Turnover

The working capital turnover ratio fluctuated considerably, starting at 8.69 in 2017, decreasing to 7.58 in 2018, then sharply dropping to 3.17 in 2019. It rebounded to 7.89 in 2020 before subsequently declining to 5.69 in 2021 and further to 2.56 in 2022. This high variability points to inconsistent efficiency in using working capital to generate sales, with marked inefficiencies in 2019 and 2022.

Average Inventory Processing Period

The average inventory processing period, expressed in days, showed an initial improvement from 62 days in 2017 to 55 days in 2018, followed by a slight increase to 57 days in 2019. Thereafter, it increased notably to 64 days in 2020, reaching a high of 73 days in 2021 before slightly decreasing to 71 days in 2022. This suggests lengthening inventory holding times in recent years, which may affect liquidity and efficiency.

Average Receivable Collection Period

The average receivable collection period declined from 59 days in 2017 to a low of 49 days in 2020, indicating improved collection efficiency. However, it increased again to 56 days in 2021 and slightly decreased to 54 days in 2022. The overall trend reflects some improvement with moderate recent reversals.

Operating Cycle

The operating cycle in days decreased from 121 in 2017 to 110 in 2018, then remained relatively stable around 111 to 113 days through 2019 and 2020. A noticeable increase occurred in 2021 to 129 days, followed by a moderate decline to 125 days in 2022. The longer cycle in the last two years indicates slower overall operating activity.

Average Payables Payment Period

The average payables payment period rapidly declined from 52 days in 2017 to 39 days in 2020, indicating faster payments. However, it rose sharply to 58 days in 2021 and slightly decreased to 56 days in 2022, which could reflect changes in payment policies or cash flow management.

Cash Conversion Cycle

The cash conversion cycle initially decreased from 69 days in 2017 to 61 days in 2018 but increased subsequently to 63 days in 2019 and peaked at 74 days in 2020. It then declined to 71 days in 2021 and further to 69 days in 2022. This variation indicates fluctuating efficiency in managing cash flow timing, with the longest cash cycle observed in 2020.

The analysis of the financial data over the period from June 30, 2017, to June 30, 2022 reveals the following trends:

Cost of Sales

The cost of sales exhibited a general upward trend throughout the analyzed years. Starting from approximately 9.19 billion US dollars in 2017, it increased consistently, reaching around 11.39 billion US dollars in 2022. Notably, there was a slight decrease in 2020, aligning with global economic disruptions during that period, but the cost quickly rebounded in subsequent years.

Inventories

Inventories showed a steady increase over the six years. Beginning at roughly 1.55 billion US dollars in 2017, the inventory levels rose annually, culminating in about 2.21 billion US dollars in 2022. This consistent growth suggests ongoing accumulation of stock, which could indicate preparation for increased sales, inventory holding strategies, or a response to supply chain considerations.

Inventory Turnover Ratio

The inventory turnover ratio demonstrated a declining trend over the period. Starting at 5.93 in 2017, it peaked slightly at 6.64 in 2018 but then gradually decreased each year, falling to 5.14 by 2022. The declining inventory turnover ratio, coupled with rising inventory levels and increasing cost of sales, may imply slower movement of inventory or increased inventory holding periods, potentially impacting operational efficiency.

The financial data over the period from June 30, 2017, to June 30, 2022, reveals several notable trends in sales, receivables, and efficiency ratios. Net sales exhibit a generally positive trajectory, increasing from approximately $12.03 billion in 2017 to about $15.86 billion in 2022. This upward trend indicates steady business growth, with a minor dip observed in 2020, likely reflecting external market challenges during that year.

Trade accounts receivable, net, show fluctuation but an overall increase over the years, rising from roughly $1.93 billion in 2017 to $2.34 billion in 2022. There is a noticeable decrease in 2020, aligning with the dip in net sales for the same period, before recovering in subsequent years. This pattern suggests careful management of receivables in response to changing sales volumes.

Receivables turnover, a ratio indicating how efficiently the company collects its receivables, shows improvement over time with some variation. Starting at 6.23 in 2017, the ratio peaks at 7.39 in 2020, suggesting more rapid collection during that year, possibly due to tightened credit policies or improved collection processes in response to economic conditions. However, the ratio declines in 2021 to 6.57, then recovers slightly to 6.77 in 2022, indicating a return to more typical collection efficiencies.

Net Sales

Consistently increasing trend with growth from $12.03 billion (2017) to $15.86 billion (2022), except for a decrease in 2020.

Trade Accounts Receivable, Net

Increasing trend from $1.93 billion (2017) to $2.34 billion (2022), with a decline observed in 2020 parallel to net sales.

Receivables Turnover Ratio

Improved efficiency till 2020, peaking at 7.39, followed by a moderate decrease and stabilization around 6.77 in 2022.

Overall, the data suggests resilience and adaptive financial management, as the company experienced growth in sales and maintained generally efficient receivables collection despite the economic impacts seen in 2020. The minor fluctuations in the receivables turnover ratio reflect adjustments in credit and collection practices in response to changing sales and market conditions.

Cost of Sales

The cost of sales exhibited a generally increasing trend over the analyzed periods, rising from 9,188,962 thousand US dollars in mid-2017 to 11,387,267 thousand US dollars in mid-2022. There was a slight dip in 2020 to 10,286,518 thousand US dollars, likely reflecting the impact of external factors during that period, followed by a recovery and further increase by 2022.

Accounts Payable, Trade

Trade payables showed variability over the observed years. Starting at 1,300,496 thousand US dollars in 2017, there was a modest rise until 2019, then a notable decrease in 2020 to 1,111,759 thousand US dollars. This was followed by a substantial increase in 2021 to 1,667,878 thousand US dollars and a slight further increase in 2022. This pattern may indicate changes in payment terms or supplier relationships during these years.

Payables Turnover Ratio

The payables turnover ratio fluctuated throughout the period, starting at 7.07 in 2017 and peaking at 9.25 in 2020, indicating a faster payment cycle during that year. However, the ratio declined significantly in 2021 to 6.27 and showed a minor increase to 6.57 in 2022. The lower turnover ratio in the most recent years suggests a slower payment pace relative to cost of sales, possibly reflecting extended payment terms or cash flow management strategies.

The financial data over the periods from June 30, 2017, to June 30, 2022, reveals notable fluctuations in working capital, net sales, and the working capital turnover ratio.

Working Capital

Working capital shows a generally increasing trend, starting at approximately $1.38 billion in 2017 and rising to over $6.18 billion by 2022. There is a significant peak in 2019 with a value of about $4.52 billion, followed by a decline in 2020 to around $1.74 billion. Subsequently, the working capital increases steadily in 2021 and sharply in 2022.

Net Sales

Net sales demonstrate steady growth over the analyzed period, climbing from around $12.03 billion in 2017 to approximately $15.86 billion in 2022. Although there is a slight dip in 2020 compared to 2019, the overall trajectory is upward, indicating resilience and growth in sales revenue.

Working Capital Turnover Ratio

The working capital turnover ratio reveals an inverse pattern relative to working capital levels. The ratio decreases notably from 8.69 in 2017 to 2.56 in 2022, with the most significant steep drop occurring in 2019, where the ratio fell to 3.17 from 7.58 the previous year. The ratio recovered somewhat in 2020 before declining steadily thereafter. This trend indicates that the company’s efficiency in generating sales from its working capital has diminished over time, particularly in the latter years.

Overall, the increase in working capital combined with a moderate growth in net sales results in a declining working capital turnover ratio. This suggests that while the company has expanded its current asset base significantly, the effectiveness of utilizing these assets to support sales has decreased. The sharp rise in working capital in the most recent year warrants further investigation into its composition and whether it reflects increased current assets or other balance sheet changes.

Inventory Turnover

The inventory turnover ratio exhibited an initial increase from 5.93 in mid-2017 to a peak of 6.64 by mid-2018, indicating improved efficiency in managing inventory during this period. However, a declining trend is observed from mid-2018 onward, decreasing to 6.38 in 2019 and further dropping to 5.14 by mid-2022. This overall decline suggests a diminishing rate at which inventory is sold and replaced over the years following 2018.

Average Inventory Processing Period

The average inventory processing period, expressed in days, moved inversely relative to the inventory turnover. It decreased from 62 days in 2017 to 55 days in 2018, reflecting quicker inventory turnover consistent with the ratio increase. Starting from 2019, this period extended, rising to 57 days and then sharply increasing to 73 days in 2021, before slightly reducing to 71 days in 2022. The elongation of the inventory processing period indicates slower conversion of inventory post-2018, aligning with the downward trend in the turnover ratio.

Overall Insights

The data show a pattern of improved inventory management performance up to mid-2018, succeeded by a gradual and then more pronounced decline through to mid-2022. The increase in the average inventory processing period alongside the decrease in turnover ratio signals potential challenges in inventory management efficiency or changes in demand, supply chain dynamics, or operational conditions impacting the speed with which inventory is handled and sold.

The analysis of the financial ratios related to receivables over the six-year period reveals several notable trends and fluctuations.

Receivables Turnover Ratio

This ratio generally indicates how efficiently the company collects its receivables. Over the period, it increased from 6.23 in 2017 to a peak of 7.39 in 2020, suggesting improved collection efficiency. However, after 2020, the ratio declined to 6.57 in 2021, before rising slightly to 6.77 in 2022. Despite some volatility, the turnover remained higher in the latter years compared to the initial year, indicating a generally stronger collection performance.

Average Receivable Collection Period

Reflecting the number of days it takes on average to collect receivables, this metric decreased from 59 days in 2017 to a low of 49 days in 2020, which corresponds inversely with the peak in receivables turnover. This shortening collection period suggests improved efficiency in receivables management. However, after 2020, the collection period lengthened slightly to 56 days in 2021 and 54 days in 2022, indicating a modest decline in collection speed relative to the peak year.

Overall, the data indicates that the company enhanced its receivables collection process up to 2020, achieving a higher turnover ratio and a shorter collection period, which reflects greater operational efficiency. The subsequent years showed a minor reversal in this trend, with slight decreases in turnover and increases in collection days, though performance remained relatively strong compared to the starting point in 2017.

The analysis of key financial cycle metrics over the six-year period reveals the following trends and insights.

Average Inventory Processing Period

The average inventory processing period shows initial improvement from 62 days in 2017 to 55 days in 2018, indicating enhanced efficiency in managing the inventory turnover. However, subsequent years displayed an increasing trend, rising to 57 days in 2019 and peaking at 73 days in 2021 before a slight decrease to 71 days in 2022. This suggests some challenges in inventory management or slower movement of stock in recent years.

Average Receivable Collection Period

The average receivable collection period demonstrates a general improvement throughout the analyzed years. Starting at 59 days in 2017, it decreased steadily to 49 days in 2020, reflecting enhanced effectiveness in collecting receivables. While there was a marginal increase to 56 days in 2021, it improved slightly again to 54 days in 2022, indicating reasonably consistent receivables management.

Operating Cycle

The operating cycle, which combines the inventory processing and receivable collection periods, decreased from 121 days in 2017 to its lowest point of 110 days in 2018, consistent with improvements noted in inventory and receivables management. From 2019 onwards, the operating cycle lengthened, reaching 129 days in 2021, before a minor reduction to 125 days in 2022. This reflects the impact of increasing inventory processing times outweighing gains in receivables collection during these years.

Overall, the data indicates that while receivables management has seen improvements, the lengthening inventory processing period has contributed to an extended operating cycle in recent years, potentially impacting the efficiency of working capital utilization.

Payables Turnover

The payables turnover ratio generally exhibited slight fluctuations over the observed periods. It increased from 7.07 in mid-2017 to a peak of 9.25 by mid-2020, indicating a faster rate of paying off payables during that time. However, subsequent years saw a decline to 6.27 in 2021 and a marginal recovery to 6.57 in 2022, suggesting a slowing down in the frequency of payables clearance.

Average Payables Payment Period

The average payables payment period, measured in days, showed an inverse trend relative to the payables turnover ratio. It declined steadily from 52 days in 2017 to a low of 39 days in 2020, which aligns with the peak in payables turnover during that year, implying quicker payments. However, there was a notable increase in 2021 to 58 days, followed by a moderate decrease to 56 days in 2022. This indicates an extension in the time taken to settle payables in the later years compared to the earlier period.

Overall Insights

The data reflects an initial improvement in the company's efficiency in managing payables, reaching optimal performance around 2020. Post-2020, there appears to have been a relaxation in payment discipline or shifts in payment terms, as reflected in both the declining turnover ratio and the increased payment period. This could be indicative of strategic working capital adjustments or external factors affecting the company's payment cycles.

Average Inventory Processing Period

The average inventory processing period exhibited fluctuations over the observed years. Starting at 62 days in mid-2017, it decreased to 55 days in 2018, followed by a slight increase to 57 days in 2019. A noticeable rise occurred in 2020, reaching 64 days, with a continued increase to a peak of 73 days in 2021 before slightly declining to 71 days in 2022. This pattern indicates variability in inventory turnover, with a tendency toward longer processing times in recent years.

Average Receivable Collection Period

This period decreased steadily from 59 days in 2017 to 49 days in 2020, suggesting improvement in collection efficiency during these years. After 2020, the collection period increased to 56 days in 2021 before slightly improving again to 54 days in 2022. Overall, the trend demonstrates some volatility but reflects generally shorter collection periods compared to the start of the period.

Average Payables Payment Period

The payables payment period showed a downward trend from 52 days in 2017 to a minimum of 39 days in 2020, indicating a faster payment cycle to suppliers during this time. However, this figure increased significantly to 58 days in 2021, and slightly decreased to 56 days in 2022, suggesting a strategic extension of payment terms or delayed payments in the last two years.

Cash Conversion Cycle

The cash conversion cycle generally declined from 69 days in 2017 to 61 days in 2018 and slightly increased to 63 days in 2019. A pronounced increase occurred in 2020, reaching 74 days, followed by a reduction to 71 days in 2021 and further down to 69 days in 2022. Despite some variability, the cycle remains relatively high in the last three years compared to the earlier period, reflecting changes in working capital management and operational efficiency.