Paycom Software Inc. (NYSE:PAYC)

Inventory Turnover

The inventory turnover ratio exhibits fluctuations over the analyzed periods, starting from 113.88 in 2018, decreasing to 94.77 in 2019, then increasing to 107.34 in 2020, peaking at 143.14 in 2021, before slightly declining to 132.38 in 2022. This suggests a generally efficient management of inventory with some variability year to year.

Receivables Turnover

The receivables turnover ratio shows significant variability. It starts very high at 165.89 in 2018, drops sharply to 79.34 in 2019, gradually rises to 92.16 in 2020, further improves to 111.22 in 2021, then decreases substantially to 60.2 in 2022. This pattern indicates fluctuating efficiency in collecting receivables, with a notable decline in 2022.

Payables Turnover

Payables turnover ratio increases from 14.43 in 2018 to 21.73 in 2019, then dips to 18.2 in 2020, rises again to 28.05 in 2021, followed by a sharp decrease to 13.25 in 2022. This suggests variability in payment practices, with a tendency toward faster payments in 2021 and slower payments in 2022.

Working Capital Turnover

There is a steady decline in working capital turnover over the period, dropping from 15.76 in 2018 to 3.55 in 2022, indicating a decreasing efficiency in utilizing working capital to generate sales or revenues.

Average Inventory Processing Period

This metric remains relatively stable, fluctuating narrowly between 3 and 4 days across the years, pointing to consistent inventory handling processes.

Average Receivable Collection Period

The average period for collecting receivables increases overall, starting at 2 days in 2018, rising to 5 days in 2019, fluctuating slightly before reaching 6 days in 2022. This trend reflects increasing delays in collecting payments from customers over time.

Operating Cycle

The operating cycle lengthens overall, from 5 days in 2018 to 9 days in 2022, with fluctuations in intermediate years. This elongation suggests that the time taken from inventory acquisition to cash collection is increasing.

Average Payables Payment Period

The average payment period to suppliers shows variability, decreasing from 25 days in 2018 to 17 days in 2019, then oscillating to 28 days in 2022. The extended payment period in 2022 contrasts with the shorter periods in some prior years, indicating a possible strategic adjustment in creditor payment timing.

Cash Conversion Cycle

The cash conversion cycle remains negative throughout, indicating effective cash management where payables are being paid after receiving cash from receivables. The cycle ranges from -20 days in 2018 to -19 days in 2022, with minor fluctuations, reflecting consistency in the company's cash flow management strategy.

Cost of Revenues

The cost of revenues has shown a consistent upward trend over the five-year period. It increased from $90.763 million in 2018 to $212.741 million in 2022, indicating a significant rise in the expenses directly associated with generating sales. This growth may reflect an expansion in operations, increased sales volume, or higher input costs.

Inventory

Inventory levels have generally increased from $797 thousand in 2018 to $1.607 million in 2022. Although the inventory showed minor fluctuations between 2019 and 2021, the overall trend is upward. The rise could relate to scaling production or stocking strategies in anticipation of future sales.

Inventory Turnover

Inventory turnover ratios fluctuated during the period. After a notable drop from 113.88 in 2018 to 94.77 in 2019, the ratio increased to 143.14 in 2021 before slightly declining to 132.38 in 2022. These variations suggest changing efficiency in inventory management; particularly, the improvement after 2019 indicates the company enhanced its ability to convert inventory into sales at a faster rate, though with a slight slowdown in the most recent year.

Revenue Growth

Revenues have demonstrated a consistent upward trend over the five-year period. Starting at approximately $566 million in 2018, revenues increased steadily each year, reaching about $1.38 billion by the end of 2022. This represents robust growth, with the most significant annual increases occurring between 2020 to 2021 and continuing through 2022.

Accounts Receivable Trends

Accounts receivable have also increased over the period, from approximately $3.4 million in 2018 to $22.8 million in 2022. The rise is gradual from 2018 through 2021, but 2022 shows a notable jump, more than doubling the prior year’s balance. This may indicate either increased sales volume or changes in credit policies or collection cycles.

Receivables Turnover Ratio

The receivables turnover ratio, which measures how efficiently the company collects its receivables, displays a volatile pattern. It declined sharply from 165.89 in 2018 to 79.34 in 2019, improved slightly in 2020 and 2021 at 92.16 and 111.22 respectively, but then dropped significantly to 60.2 in 2022. The decrease in turnover ratio, particularly in 2022, suggests slower collection of accounts receivable despite increasing revenues, indicating a potential decline in collection efficiency or extended customer payment terms.

Summary Insights

Overall, the company exhibits strong revenue growth, yet the widening accounts receivable balance combined with declining receivables turnover in the most recent year raises concerns about the efficiency of cash collection. This may necessitate further review of credit management policies to ensure that increased sales are not adversely impacting working capital and liquidity.

The financial data reveals several notable trends related to costs and payables over the five-year period ending in 2022.

Cost of Revenues

The cost of revenues has shown a consistent upward trend throughout the period. Starting at $90.8 million in 2018, it increased each year, reaching $212.7 million by 2022. This represents more than a twofold increase over five years, indicating growing operational expenses or expanded scale of activities.

Accounts Payable

Accounts payable figures fluctuate during the period. Initially, the value decreased from $6.3 million in 2018 to $5.1 million in 2019, then rose to $6.8 million in 2020 and decreased again to $5.8 million in 2021. A significant increase occurred in 2022, with accounts payable nearly tripling to $16.1 million. This sharp rise may reflect changes in payment terms, supplier relationships, or increased procurement activities.

Payables Turnover Ratio

The payables turnover ratio exhibits volatility across the years. It rose from 14.43 in 2018 to a peak of 28.05 in 2021, suggesting faster payments to suppliers during these years. However, the ratio dropped significantly to 13.25 in 2022, the lowest level in the period analyzed, which corresponds with the sharp increase in accounts payable, potentially indicating slower payment cycles.

Overall, the data points to expanding operational costs alongside changing payment practices. The substantial rise in cost of revenues signals growth or increased expense burden, while the variation in accounts payable and payables turnover suggests shifts in working capital management strategies, especially in the most recent year.

Working Capital

There is a clear upward trend in working capital over the five-year period. Starting at $35,940 thousand in 2018, it increased consistently each year, reaching $387,135 thousand by the end of 2022. This growth reflects an improving liquidity position, with a more substantial buffer of current assets relative to current liabilities.

Revenues

Revenues increased steadily year over year, showing significant growth from $566,336 thousand in 2018 to $1,375,218 thousand in 2022. The revenue growth was consistent, indicating expanding business operations and effective market penetration over the period analyzed.

Working Capital Turnover

The working capital turnover ratio has declined from 15.76 in 2018 to 3.55 in 2022. This decreasing trend suggests that the company is generating less revenue per unit of working capital each year. Despite increasing revenues, working capital has grown more rapidly, indicating that the firm may be investing heavily in current assets or experiencing slower turnover of these assets.

Summary

The data exhibits strong revenue growth alongside a marked increase in working capital, which reduces the efficiency of working capital usage as reflected in the declining turnover ratio. The growth in working capital suggests a focus on strengthening liquidity but also points to a potential decrease in operational efficiency regarding asset use. These trends highlight a balance between expansion and working capital management.

Inventory Turnover

The inventory turnover ratio exhibits noticeable fluctuations over the five-year period. It began at a high level in 2018, decreased in 2019, then increased again in 2020 and reached its peak in 2021 before slightly declining in 2022. This pattern indicates varying efficiency in managing inventory, with the highest turnover suggesting a rapid sales or usage rate of inventory in 2021. The subsequent decline in 2022, although still elevated, may point to a slight reduction in inventory management effectiveness compared to the previous year.

Average Inventory Processing Period

The average inventory processing period remained largely stable, fluctuating minimally between 3 and 4 days across the analyzed years. Despite changes in turnover ratio, this stability indicates that the time taken to process inventory did not significantly vary, suggesting consistent operational handling of inventory regardless of turnover rate changes.

Overall Insight

The combination of a relatively stable average inventory processing period with fluctuations in inventory turnover suggests operational consistency in inventory handling but varying efficiency in converting inventory to sales or usage. The peak in turnover during 2021 could indicate enhanced sales activity or improved inventory management during that year, whereas the slight decrease in turnover in 2022 could imply that this trend was not sustained at the same level.

Receivables Turnover

The receivables turnover ratio experienced significant fluctuations over the observed periods. Initially, it started at a very high level of 165.89 in 2018 but sharply declined to 79.34 in 2019. Subsequently, there was a moderate recovery to 92.16 in 2020, followed by a further increase to 111.22 in 2021. However, in 2022, the ratio dropped considerably again to 60.2. This volatile pattern suggests varying efficiency in collecting receivables, with a general trend of decreasing turnover in the most recent year compared to the beginning of the period.

Average Receivable Collection Period

The average receivable collection period inversely mirrors the trend of the receivables turnover ratio. It increased from a very short period of 2 days in 2018 to 5 days in 2019, indicating slower collection during that year. The period then shortened somewhat to 4 days in 2020 and improved further to 3 days in 2021, implying enhanced collection efficiency. However, in 2022, the collection period lengthened to 6 days, reflecting a decline in the speed of receivable collections. This increase suggests potential challenges in maintaining efficient cash inflows from receivables in the most recent year.

Overall Insights

Over the five-year span, the company experienced noticeable variability in its receivables management metrics. The inverse relationship between receivables turnover and average collection period is consistent with expectations; as turnover decreases, the collection period increases. The sharp declines in turnover and concurrent increases in collection days at the beginning and end of the period signal periods of reduced efficiency in accounts receivable management, which may have implications for cash flow and working capital management. Conversely, the middle years exhibited improvements in these metrics, denoting better receivables control and faster cash conversion cycles during that time frame.

Average Inventory Processing Period

The average inventory processing period remained relatively stable over the five-year span. It began at 3 days in 2018, increased slightly to 4 days in 2019, and then reverted to 3 days from 2020 through 2022. This indicates consistent efficiency in inventory handling with minimal fluctuations.

Average Receivable Collection Period

The average receivable collection period exhibited variability during the analyzed timeframe. It rose from 2 days in 2018 to a peak of 5 days in 2019, then decreased to 4 days in 2020, followed by a reduction to 3 days in 2021, and subsequently increased to 6 days in 2022. This pattern suggests some inconsistency in collecting receivables, with notable improvement mid-period before the lengthening in the final year.

Operating Cycle

The operating cycle mirrored the trends in receivable collection, showing an overall increase from 5 days in 2018 to 9 days in 2019, a decrease to 7 days in 2020, a further decline to 6 days in 2021, and a return to 9 days in 2022. This indicates fluctuations in the company's operational efficiency, primarily influenced by changes in receivables management, while inventory processing remained stable.

Payables Turnover

The payables turnover ratio demonstrates significant fluctuations over the observed periods. It increased markedly from 14.43 in 2018 to a peak of 28.05 in 2021, indicating a faster payment cycle to suppliers during this timeframe. However, in 2022, there was a sharp decline to 13.25, almost halving the turnover rate from the previous year. This suggests a considerable slowdown in the rate at which payables were settled in the latest year.

Average Payables Payment Period

The average payables payment period inversely mirrors the changes in payables turnover, decreasing from 25 days in 2018 to a low of 13 days in 2021, reflecting quicker payments to creditors. In 2022, this trend reversed, with the period extending to 28 days, indicating slower payments and a longer duration to settle outstanding payables compared to prior years. This increase represents the longest payment period observed in the given timeframe.

Overall Trend Analysis

The data reveals a trend toward faster payment practices from 2018 through 2021, as shown by increasing payables turnover and decreasing payment days. However, in 2022, the trend shifted noticeably toward slower payments, evidenced by a reduced turnover ratio and an extended payment period. This shift may suggest changes in cash management strategies or supplier payment terms during the latest year.

Inventory Processing Period

The average inventory processing period remained relatively stable over the five-year period, fluctuating between 3 and 4 days. Specifically, it increased slightly from 3 days in 2018 to 4 days in 2019, then returned to 3 days and maintained that level through 2022. This indicates consistent efficiency in inventory handling.

Receivable Collection Period

The average receivable collection period exhibited some variability. It started at 2 days in 2018, increased to 5 days in 2019, then slightly decreased to 4 days in 2020 and to 3 days in 2021, before rising again to 6 days in 2022. This trend shows some fluctuations in the speed of collecting receivables, with a notable increase in 2022 that may warrant closer monitoring.

Payables Payment Period

The average payables payment period showed more pronounced fluctuations across the years. Starting at 25 days in 2018, it dropped to 17 days in 2019, rose to 20 days in 2020, decreased sharply to 13 days in 2021, and then reached the highest value of 28 days in 2022. The extension to 28 days in the most recent year suggests a lengthening in payment terms or a strategic delay in payments.

Cash Conversion Cycle

The cash conversion cycle (CCC) remained negative throughout the entire period, reflecting a favorable cash flow position where payables durations exceed the sum of inventory processing and receivables collection periods. The CCC was -20 days in 2018, improved to -8 days in 2019, then improved further to -13 days in 2020, decreased slightly to -7 days in 2021, and then again improved significantly to -19 days in 2022. These fluctuations in CCC mirror the changes in payables and receivables periods, indicating dynamic working capital management but overall maintaining a cash-efficient cycle.