Parker-Hannifin Corp. (NYSE:PH)

The analysis of the financial turnover ratios and cycles over the examined periods reveals several notable trends and fluctuations.

Inventory Turnover

This ratio shows a gradual decline over time, starting around 5.63 and peaking near mid-2018 at approximately 6.64 before steadily decreasing to a value below 4.0 toward the end of 2022. This downward trend indicates slower inventory movement, suggesting potential challenges in inventory management or changes in sales velocity.

Receivables Turnover

The receivables turnover ratio experienced moderate fluctuations but generally maintained a range between 6.0 and 7.5 throughout the periods. There were periods of increases and decreases; however, there is no clear long-term trend. This relative stability suggests consistent efficiency in collecting receivables over time.

Payables Turnover

Payables turnover showed some volatility, with values oscillating mostly between about 6.0 and 9.0. A peak occurred in mid-2020, exceeding 9.0, followed by a decline to values closer to 6.0 by the end of 2022. This could reflect changes in payment pacing to suppliers, possibly linked to working capital management strategies.

Working Capital Turnover

The working capital turnover ratio exhibited considerable variability, with sharp declines and recoveries. Notably, it dropped to as low as approximately 2.56 in mid-2022 after a high of over 9.0 in late 2022. Such swings imply fluctuating efficiency in utilizing working capital to generate sales and may reflect operational disruptions or strategic adjustments.

Average Inventory Processing Period

This metric reveals that the number of days inventory is held increased gradually, moving from around 55 days in mid-2018 to peaks nearing or exceeding 100 days near the end of 2022. The lengthening inventory holding period is consistent with the declining inventory turnover ratio and suggests slower inventory movement and potential buildup.

Average Receivable Collection Period

The collection period remained relatively stable, mostly oscillating between 49 and 59 days without significant upward or downward trends. Stability in this metric indicates consistent credit policies and collection effectiveness.

Operating Cycle

This cycle, reflecting the overall time to convert inventory and receivables into cash, showed a moderate increase from about 110-120 days in earlier periods to peaks exceeding 150 days by late 2022. The lengthening operating cycle points to slower overall asset conversion, which could impact liquidity.

Average Payables Payment Period

The average days to pay suppliers varied between roughly 39 and 64 days, showing an increasing trend in later periods, notably rising after 2020 and reaching over 60 days by the end of 2022. This suggests the company has extended payment terms or delayed payments to suppliers more recently, potentially as a cash management measure.

Cash Conversion Cycle

The cash conversion cycle experienced increases, fluctuations, and a pronounced escalation toward the end of the period, rising from about 60-75 days to approximately 90-95 days by late 2022. This increase reflects the cumulative impact of lengthening inventory processing and payables payment periods, resulting in a longer time before cash is recovered.

Overall, the data indicate a trend toward slower inventory turnover and longer operating and cash conversion cycles, which together suggest extended cash conversion times and potential pressure on working capital efficiency. While receivables collection remains stable, the extension in payables payment periods hints at attempts to manage liquidity amid these changes. These patterns warrant careful monitoring and may suggest a need to optimize inventory levels and working capital management practices to improve operational efficiency.

The cost of sales demonstrates fluctuations across the observed periods with a general increasing tendency toward the most recent quarters. Starting at approximately 2,532,878 thousand US dollars, it peaks in the latest quarter at 3,236,812 thousand US dollars. Notably, the cost of sales experienced a decline around mid-2020 before ascending through 2021 and 2022, suggesting variations in production or procurement costs, possibly influenced by market conditions or operational changes.

The inventories exhibit an overall growth trend with some intermittent decreases. Initial inventory levels were around 1,707,001 thousand US dollars and increased substantially to over 3,095,722 thousand US dollars by the last period. This growth, especially marked in the last two quarters, may imply accumulation of stock, changes in inventory management strategy, or preparation for heightened demand. Some moderate declines occur mid-series but are generally overshadowed by the upward trajectory.

The inventory turnover ratio, indicating the efficiency of inventory management by measuring how often inventory is sold and replaced, shows a declining trend over the periods. Beginning at 5.63, it peaks early in the series near mid-2018 at about 6.64 but consistently decreases after late 2018, dropping to a low near 3.66 in the latest quarter. This reduction suggests that inventory is turning over fewer times annually, which could signify slower sales, excess stocking, or changes in supply chain dynamics. The declining turnover ratio amid rising inventory values aligns with the above-noted inventory buildup.

Cost of Sales

Shows a general increasing pattern with fluctuations, peaking in the latest period, with a dip observed in mid-2020.

Inventories

Exhibits a continual increase over time with a notable acceleration in the last two quarters of data, reflecting inventory accumulation.

Inventory Turnover

Declines steadily from a high in 2018 to its lowest in the most recent quarter, indicating decreasing efficiency in inventory usage or slower sales.

Overall, the financial data reveals that while sales-related expenses (cost of sales) are growing, the company's inventory levels are rising considerably, and the efficiency in managing those inventories is diminishing. This pattern could point to potential overstocking or reduced demand affecting inventory liquidation rates. Close attention to inventory management and sales performance might be warranted to optimize working capital and mitigate risks of excess inventory.

The financial data indicates several notable trends in sales and receivables activity over the examined periods. Net sales demonstrate fluctuations with a general upward trajectory, particularly evident from early 2020 onwards where sales recover from a dip and progressively increase, reaching the highest value by the final period.

Trade accounts receivable exhibit a pattern that somewhat corresponds to net sales trends but with more volatility. Receivables decrease in some periods despite sales increasing, suggesting enhanced collection efficiency or changes in credit policies. However, there are also periods where receivables grow faster than sales, implying possible delays in collections or extended credit terms.

Receivables turnover ratios fluctuate moderately across periods, reflecting varying efficiency in converting receivables into cash. Periods where this ratio rises generally align with times when receivables either decrease or grow more slowly than sales, indicating improved collection performance. Conversely, a declining turnover ratio suggests challenges in receivables management.

Net Sales

After relatively stable values in the initial periods, net sales fell slightly around late 2019 and mid-2020 but showed a strong, consistent recovery and growth from late 2020 through the end of 2022, suggesting an overall positive sales momentum.

Trade Accounts Receivable, Net

The recorded values exhibit fluctuations with periods of both decreases and increases. Notably, during mid-2020, there is a significant drop corresponding with a dip in sales, followed by a rise starting in early 2021 and continuing through 2022, though this rise is inconsistent.

Receivables Turnover Ratio

The ratio varies between approximately 6.16 and 7.49, indicating moderate changes in collection efficiency. The turnover peaked near the end of 2018 and again late 2021. Lower values occur around early 2020 and mid-2022, corresponding with periods of declining or slower sales growth.

Overall, the data suggests the company experienced some operational challenges affecting sales and receivables during 2019 and 2020 but demonstrated improving operational effectiveness and sales growth from late 2020 onwards. The interplay between sales growth and receivables management improved reflected in fluctuating but generally stable turnover ratios.

The quarterly financial data indicates several notable patterns in cost of sales, accounts payable, and payables turnover over the observed periods.

Cost of Sales (US$ in thousands)

Cost of sales exhibited fluctuations throughout the periods. Initially, it increased from approximately 2.53 billion to a peak of around 2.84 billion in mid-2018, followed by a decline toward the end of 2018 and early 2019. After some variability, a significant decline is observed in mid-2020, coinciding with a period of reduced cost levels near 2.36 billion. Subsequently, cost of sales showed an increasing trend from late 2020 through 2022, culminating at approximately 3.24 billion by the end of 2022, indicating a rising expense in the latter periods.

Accounts Payable, Trade (US$ in thousands)

Accounts payable reflected a somewhat cyclical pattern but with overall growth across the timeline. Starting around 1.3 billion, payables fluctuated with intermittent rises and declines, notably dipping to around 1.11 billion in mid-2020 during the same timeframe as the drop in cost of sales. Thereafter, accounts payable progressively increased, reaching nearly 2 billion by the end of 2022, suggesting the company was either negotiating longer payment terms or experiencing increased purchase volumes.

Payables Turnover (ratio)

The payables turnover ratio began at 7.37 and displayed variability reflecting changes in payment efficiency and purchasing habits. Early in the period, the ratio generally stayed between 7.3 and 8.3, indicating relatively stable payables management. During mid-2020, the turnover spiked to 9.25, implying faster payments or reduced purchases relative to accounts payable. Post mid-2020, the ratio exhibited a declining trend, falling below 6 by late 2022, signifying a slowdown in payables turnover which could be related to extended payment terms or increased accounts payable balances.

Overall, the data shows that cost of sales and accounts payable experienced growth with periodic fluctuations, while payables turnover suggests a shift toward slower payment patterns in the most recent periods. This could reflect strategic adjustments in working capital management or changing purchasing conditions impacting the company’s operational cash flow dynamics.

The analysis of the quarterly financial data reveals distinct patterns and fluctuations over the observed periods, particularly concerning working capital, net sales, and working capital turnover ratios.

Working Capital

Working capital demonstrates significant volatility, with values rising sharply in certain quarters, notably reaching a peak above 6 million US dollars in June 2022. This peak is an outlier compared to the generally lower and more stable values in other periods. Prior to this peak, working capital varied mostly between approximately 1.5 to 2.6 million US dollars. The large spike in mid-2022 suggests an unusual accumulation or release of current assets relative to current liabilities, which may reflect changes in operations, inventory management, or accounts receivable/payable cycles.

Net Sales

Net sales show a generally upward trend over the time frame analyzed. Starting from around 3.3 million US dollars in late 2017, there is a steady increase moving towards the 4.6 million US dollars mark by the end of 2022. Although occasional quarter-to-quarter decreases exist, the overall trajectory indicates growth in revenue generation. This positive trend in net sales suggests expanding market demand or successful sales strategies.

Working Capital Turnover

The working capital turnover ratio, which measures the efficiency of using working capital to generate sales, fluctuates noticeably. It starts at 8.23 in September 2017, declines to lows around 2.56 in September 2022 coinciding with the spike in working capital, and then rises again towards 10.86 by December 2022. Periods with low turnover correspond with exceptionally high working capital values, indicating less efficient use of capital during those times. Conversely, higher turnover ratios reflect periods of improved capital utilization driving sales more efficiently. The ratio's volatility underlines the dynamic operational factors affecting the company's short-term financial management.

In summary, the financial data reflects growing net sales alongside varying efficiency in working capital usage. The unusual spikes in working capital impact turnover ratios and suggest episodic shifts in operational or financial management practices. Monitoring these fluctuations is essential for understanding underlying business conditions and maintaining balanced liquidity and sales performance.

The analysis of the quarterly financial metrics reveals notable trends in inventory management efficiency over the observed periods.

Inventory Turnover Ratio

The inventory turnover ratio exhibited an overall decreasing trend from late 2017 through the end of 2022. Starting at 5.63 in September 2017, the ratio increased to a peak of around 6.64 by June 2018, indicating faster inventory turnover during that period. However, subsequent quarters saw a gradual decline, falling to approximately 3.66 by September 2022. This decline suggests that the firm’s inventory was turning over less frequently toward the latter periods.

Average Inventory Processing Period

This metric, representing the average number of days inventory was held before being sold or used, moved inversely to the inventory turnover ratio, as expected. After an initial improvement (reduction) from 65 days in September 2017 to 55 days by June 2018, the average processing period increased notably thereafter. By late 2022, it had risen sharply to 100 days in September and 95 days in December, implying slower inventory movement and potentially signaling challenges in inventory clearance or demand fluctuations.

Overall Insights

The inverse relationship between turnover ratio and processing period aligns with standard inventory management principles. The peak efficiency in mid-2018 corresponds with the highest turnover and the shortest processing time. The subsequent decline in turnover combined with the extended processing period suggests a deterioration in inventory management efficiency or external factors impacting sales velocity. The particularly steep increase in processing days toward the end of 2022 may warrant deeper investigation into operational bottlenecks, supply chain disruptions, or market demand reductions during this time.

The analysis of the receivables turnover ratio and the average receivable collection period over the specified quarters reveals several notable trends and fluctuations in the company's credit management efficiency.

Receivables Turnover Ratio

The receivables turnover ratio fluctuated between 6.16 and 7.49 during the observed periods. It started at 6.58 in September 2017, reaching a peak of 7.49 at the end of 2018 and again in late 2021. Generally, the ratio exhibited moderate volatility, with periodic increases suggesting improved efficiency in collecting receivables. However, the ratio dipped notably around early 2020 and again in 2022, reaching its lowest point of 6.16 at the end of September 2022, before recovering slightly by the end of December 2022.

Average Receivable Collection Period

The average collection period inversely correlated with the turnover ratio, varying from 49 days at its shortest to 59 days at its longest. The period shortened notably at the end of 2018 and towards late 2021, aligning with peaks in the turnover ratio, indicating effective receivable management and quicker collection. Conversely, elongations in collection periods were observed around early 2020 and from mid to late 2022, consistent with dips in the turnover ratio, implying slower collection times and potential challenges in accounts receivable management during those intervals.

Overall Observations

Patterns in the data suggest that the company experienced periods of enhanced receivables management, marked by higher turnover and shorter collection periods, especially in late 2018 and late 2021. The downturns occurring around early 2020 and through 2022 may reflect external challenges impacting payment collections, such as market conditions or disruptions. The oscillations observed indicate the need for continued focus on credit policies and collection processes to stabilize and optimize cash flow from receivables.

Average Inventory Processing Period

The average inventory processing period exhibited some volatility over the evaluated timeframe. Initially, it showed a declining trend from 65 days at the end of Q3 2017 to a low of 55 days in Q2 2018. Subsequently, the period fluctuated between 57 and 69 days through the end of 2019, demonstrating relative stability with minor upward movements. However, starting in early 2020, there was a pronounced upward shift with this metric increasing steadily, peaking at 100 days by Q4 2022. This substantial elongation of the inventory processing period suggests a slower turnover of inventory in the later periods analyzed.

Average Receivable Collection Period

The average receivable collection period maintained a narrower range compared to inventory processing, spanning between 49 and 59 days. The period saw moderate fluctuations with no consistent upward or downward trend. Early periods reflected a slight decrease from 55 to the high 40s in late 2018 and early 2019, followed by a series of oscillations around the mid-50-day mark through 2022. This indicates relatively stable receivables management, with minor variations possibly influenced by seasonal or operational factors.

Operating Cycle

The operating cycle, representing the sum of the inventory processing and receivable collection periods, followed a pattern consistent with changes seen in the individual components. It initially decreased from 120 days in late 2017 to 110 days by mid-2018, then remained mostly stable around 110 to 120 days until early 2020. Afterward, a marked extension occurred, reaching a peak of 159 days by Q4 2022. This elongation corresponds primarily to the protracted inventory processing period and signals a lengthening in the overall time taken for the company’s operational cycle. The increase in the operating cycle may imply rising inefficiencies or shifts in business conditions affecting asset turnover.

The analysis of the payables turnover and average payables payment period over the examined quarters reveals notable fluctuations and certain trends indicative of changes in the company's payment practices and supplier management efficiency.

Payables Turnover

The payables turnover ratio shows variability throughout the periods. Initially, the ratio increased from 7.37 in September 2017 to a peak of 8.31 in December 2018. This rise suggests an acceleration in payments to suppliers during that interval. However, starting from early 2019, the ratio generally declined, reaching a lower point of 5.68 in September 2022 before slightly recovering to 6.07 by December 2022. This downward trend indicates a relative slowdown in the frequency of payments to creditors or possibly extended payment terms.

Average Payables Payment Period

The average payables payment period, expressed in days, inversely correlates with the payables turnover. It initially fluctuated around the mid-40s range, dropping to as low as 39 days in June 2020, reflective of quicker payments during that quarter. However, from March 2021 onwards, the payment period lengthened consistently, peaking at 64 days in September 2022. Despite a slight reduction to 60 days by December 2022, the overall trend suggests that the company took longer to settle its payables in the most recent years compared to earlier periods.

General Insights

The inverse movement between payables turnover and average payment period indicates a strategic adjustment in managing payables. The lengthening payment cycle throughout 2021 and 2022 could imply efforts to optimize cash flow by extending payment terms with suppliers. While this can enhance liquidity in the short term, it may also affect supplier relationships if prolonged excessively. Conversely, the quicker payments around mid-2020 might have been influenced by specific operational or market conditions necessitating faster settlements.

The analysis of the financial efficiency indicators over the presented periods reveals several noteworthy trends in working capital management.

Average Inventory Processing Period

This metric shows fluctuations throughout the period, initially decreasing from 65 days in September 2017 to a low of 55 days by June 2018, indicating improved inventory turnover. However, from mid-2018 onwards, the inventory days generally increased, reaching peaks of 77 days in September 2021 and 100 days by December 2022. This upward trend suggests a lengthening of inventory holding periods, which could impact liquidity and operational efficiency.

Average Receivable Collection Period

The receivable collection period exhibits relative stability with minor fluctuations. Starting at 55 days in September 2017, it decreases to around 49-50 days in late 2018 and early 2019, indicating improved credit collection processes. Subsequently, the period varies between 49 and 59 days without a consistent upward or downward trend, suggesting steady credit management practices over time.

Average Payables Payment Period

The payables payment period demonstrates a slight increasing trend overall. Beginning at 50 days in September 2017, it declines to a low of 39 days in June 2020, reflecting faster payments to suppliers during that time. After that, the period lengthens progressively, reaching 64 days in September 2022 and slightly reducing to 60 days by December 2022. This indicates an increasing tendency to extend payment terms, which may improve cash flow management but could affect supplier relationships.

Cash Conversion Cycle (CCC)

The cash conversion cycle, which integrates inventory, receivables, and payables periods, generally follows a fluctuating pattern. It decreases from 70 days in September 2017 to a low of 61 days in June 2018, aligning with improved inventory and receivables management. From mid-2018 to 2019, it rises moderately, peaking at 76 days in December 2019 and June 2020, before showing some decline and stabilization around the high 60s and low 70s in 2020 and 2021. Notably, in the last two quarters of 2022, the CCC spikes to 95 and 90 days, reflecting prolonged inventory holding and extended payables, indicating a deterioration in overall working capital efficiency during this period.