Raytheon Co. (NYSE:RTN)

The analysis of the quarterly financial ratios and periods reveals notable trends in the company's operational efficiency over the observed periods.

Inventory Turnover

The inventory turnover ratio fluctuated between approximately 21.8 and 32 throughout the periods. Noteworthy is the peak around the end of 2017 and the first quarter of 2016, indicating periodic improvements in inventory management efficiency. However, there was a downward trend during mid-2018 and 2019 before recovering at the end of 2019.

Receivables Turnover

Receivables turnover data, available from late 2016 onwards, shows moderate variability. The ratio decreased to a low point near mid-2017 but tended to increase towards the end of 2019, indicating an overall improvement in the collection of receivables over time.

Payables Turnover

This ratio showed some fluctuation, ranging from below 10 to above 15. A general decline was observable towards the end of 2018, with a low point around the last quarter. Following this, turnover improved somewhat but declined again by the end of 2019, suggesting varying payment practices to suppliers.

Working Capital Turnover

Working capital turnover experienced a modest downward trend from early 2016 to 2017 but generally increased afterwards, peaking in the final quarter of 2019. This indicates more effective use of working capital in generating sales in the later periods under review.

Average Inventory Processing Period

The average days to process inventory remained relatively stable, mostly between 11 and 17 days. There was a brief shortening near the end of 2017 and again at the end of 2019, which aligns with peaks in the inventory turnover ratio, suggesting periods of enhanced inventory management efficiency.

Average Receivable Collection Period

The average days to collect receivables mostly ranged from 17 to 23 days, with no clear long-term trend but some fluctuations quarter to quarter. The period tended to decrease toward the end of 2019, which coincides with improvements in receivables turnover.

Operating Cycle

The operating cycle, calculated from available data starting in early 2017, varied between 28 and 38 days. It generally showed a decreasing trend toward the end of 2019, indicating faster conversion of inventory and receivables into cash.

Average Payables Payment Period

The time taken to pay suppliers ranged mainly between 24 and 37 days, with an apparent increase around the end of 2018. Following this peak, the payment period remained more stable though slightly elevated compared to earlier periods, suggesting more extended payment terms or delays.

Cash Conversion Cycle

The cash conversion cycle exhibited considerable volatility, with days ranging from negative values to as high as 13. Negative values indicate periods when payables payment exceeded the combined processing and collection periods, effectively reducing cash outflow periods. Improvements were noticeable toward the end of 2019, signaling enhanced overall cash flow management.

Overall, while the company experienced some variability in operational efficiency metrics across quarters, there is a general trend of improvement in receivables collection and working capital utilization by the end of the analyzed timeline. Inventory management and payment practices showed cyclical fluctuations, with periods of both efficiency and elongated cycles.

Cost of Sales, Products and Services

The cost of sales exhibited an overall increasing trend from April 2016 through December 2019. Initially, the costs ranged from approximately 4,380 to 4,655 million USD during 2016. There was a notable rise in the last quarter of 2017, reaching 5,171 million USD, and this upward movement generally persisted into 2018 and 2019. The values peaked at 5,832 million USD by the end of 2019, indicating increasing expenses related to products and services over this period.

Inventories

The inventory levels showed a fluctuating pattern over the quarters. Starting around 637 million USD in early 2016, inventories slightly increased and decreased intermittently, reaching its highest point near 932 million USD at mid-2019. Toward the final quarter of 2019, inventories decreased to 671 million USD. This fluctuation suggests variations in stock management and purchasing strategies, possibly in response to demand or production cycles.

Inventory Turnover

The inventory turnover ratio fluctuated notably over the period, reflecting changing efficiency in inventory management relative to cost of sales. The ratio was relatively high in early 2016, around 28 to 27 times, then showed an increasing trend reaching above 32 times in the last quarter of 2017. Subsequently, it declined during 2018 and mid-2019, dipping to as low as about 21.83 times, before sharply increasing again to nearly 31.91 times by the end of 2019. These variations suggest periods of both more rapid and slower inventory movement.

Insights

The rising cost of sales alongside fluctuating inventory levels points to potential changes in production volume or input costs. Inventory turnover changes indicate periods when inventory was either accumulating or being sold more quickly, which could be tied to operational adjustments or market demand shifts. The combination of higher cost of sales with periods of lower inventory turnover might imply inefficiencies or strategic stockpiling during certain quarters. Conversely, higher turnover ratios coincide with lower inventory levels, reflecting improved inventory management efficiency towards the end of the reported timeframe.

The financial data demonstrates varying trends in net sales, receivables, and receivables turnover over the examined quarters from 2016 to 2019.

Net Sales

Net sales exhibit a general upward trend throughout the period. Starting at $5,763 million in April 2016, the sales experienced moderate fluctuations but increased overall, reaching $7,842 million by December 2019. Notably, there were consistent increases in the second half of each year, particularly in the final quarters of 2017 and 2018, indicating potential seasonality or successful end-of-year sales strategies.

Receivables, Net

Data for net receivables begins in April 2017, showing values fluctuating within a range of approximately $1,319 million to $1,648 million. Observations reveal some quarterly variability without a clear definitive trend upwards or downwards. Receivables peak in December 2018 at $1,648 million and subsequently show slight decreases in early 2019. This pattern may indicate management's attention to optimizing receivables collection or changes in credit policies during this period.

Receivables Turnover

The receivables turnover ratio, available from July 2017 onward, reflects the efficiency in collecting receivables. The ratio fluctuates within a range roughly between 15.63 and 21.39. Generally, higher ratios represent improved collection efficiency. The ratio starts at 18.43, dips to its lowest at 15.63 in April 2018, but shows an improving trend afterward, reaching a peak of 21.39 by December 2019. This suggests enhanced effectiveness in receivables management toward the end of the period, likely contributing to healthier cash flows.

Cost of Sales, Products, and Services

The cost of sales for products and services demonstrates a general upward trend throughout the observed quarters. Starting at 4,400 million USD in the first quarter of 2016, there is a consistent increase with minor fluctuations, reaching 5,832 million USD by the last quarter of 2019. The data reveals periods of more rapid growth, particularly in the last two quarters of 2018 and continuing into 2019, indicating possibly increased production or rising input costs during this period.

Accounts Payable

Accounts payable values show some variability within the timeframe under review. Initial values fluctuate, decreasing from 1,304 million USD in early 2016 to a low around 1,255 million USD in early 2018, before rising sharply to a peak of 1,964 million USD in the fourth quarter of 2018. After this peak, there is a pattern of moderate growth with a slight decline in some quarters, ending at 1,796 million USD in the last quarter of 2019. This irregular pattern suggests variability in credit terms or purchasing volumes.

Payables Turnover Ratio

The payables turnover ratio exhibits noticeable fluctuations, ranging from a low near 9.97 to a high of approximately 15.2 during the reporting periods. Higher turnover ratios around mid-2017 and mid-2018 suggest quicker payments to suppliers during those quarters. Conversely, the lowest turnover at the end of 2018 corresponds with the peak in accounts payable, indicating slower payment. The final quarters of 2019 show a decline in turnover ratio, implying a trend towards lengthening payment cycles or increased credit utilization.

Working Capital

Working capital exhibited a generally fluctuating pattern over the observed periods. Starting at 3,610 million USD, it increased steadily through most of 2016 and early 2017, peaking near 4,350 million USD in mid-2017. Subsequently, it experienced a decline towards the end of 2017, followed by another phase of relative stability with some volatility throughout 2018 and 2019. Notably, sharp decreases were visible from the end of 2018 to early 2019 and from late 2019.

Net Sales

Net sales displayed an overall upward trend across the dates. Initial figures near 5,763 million USD in early 2016 rose gradually with some fluctuations, reaching over 6,783 million USD by the end of 2017. Growth continued into 2018 and 2019, with sales approaching 7,842 million USD by the final quarter. The data suggests consistent revenue growth, with no prolonged periods of decline.

Working Capital Turnover Ratio

The working capital turnover ratio showed variability while indicating increased efficiency at several points. Starting at 6.57 in early 2016, it slightly decreased through 2016 but showed a notable rise in the last quarter of 2017, increasing to 6.37 from a lower level earlier that year. The ratio peaked in segments of 2018 and 2019, reaching highs such as 8.87 in the final quarter of 2019, reflecting improved utilization of working capital to generate sales. However, some interim fluctuations suggest periods of changing operational efficiency.

Overall Analysis

The data highlights a trend of increasing net sales paired with variable working capital levels. Despite fluctuations in working capital, turnover ratios tend to improve over the latter part of the timeline, indicating better management or more efficient use of resources relative to sales output. Periods of declining working capital coupled with rising or stable sales and turnover ratios may denote stronger operational performance. The trends suggest a focus on improving capital efficiency, aligning with growing sales figures.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates noticeable fluctuations across the analyzed periods. Initially, the ratio declines slightly from 28.48 to 26.82 in the second quarter of 2016 but remains relatively stable around 27 to 28 through the end of 2016. In 2017, the ratio increases significantly, peaking at 32.11 in the fourth quarter, followed by a decline through most of 2018, reaching a low point of 24.07 in the third quarter. The ratio then recovers again toward the end of 2019, achieving its highest recent value of 31.91.

This variability suggests changes in the efficiency of inventory management or fluctuations in sales volume, impacting how frequently inventory is sold and replaced. Higher turnover in late 2017 and late 2019 indicates periods of stronger inventory movement relative to inventory levels.

Average Inventory Processing Period

The average inventory processing period generally shows an inverse relationship with inventory turnover, ranging between 11 and 17 days. The period exhibits some volatility, with the shortest duration being 11 days in the fourth quarter of 2017 and first quarter of 2019, and the longest reaching 17 days in the second quarter of 2019.

Periods of shorter processing times correspond with elevated inventory turnover rates, suggesting more efficient handling and faster inventory cycles. Conversely, the elongated processing periods during mid-2019 coincide with a dip in turnover, indicating slower inventory movement and potential build-up in stock.

Overall Insights

The data reveal cyclical patterns in inventory management efficiency, with the company experiencing both periods of high turnover and more prolonged inventory holding times. The fluctuation patterns imply responsiveness to market demand shifts or operational adjustments impacting inventory flow. Monitoring these metrics remains critical to optimizing inventory levels, minimizing holding costs, and maintaining alignment with sales activity.

Receivables Turnover Trend

The receivables turnover ratio demonstrates fluctuations over the observed periods, starting at 18.43 in early 2017, declining to 15.74 in mid-2017, then rising again to 19.15 by the end of 2017. The ratio shows continued variability in 2018, moving between 15.63 and 19.71, before improving consistently through 2019, culminating at 21.39 at the close of the year. This indicates an overall enhancement in the efficiency of receivables collection, suggesting the company has been increasingly effective at converting receivables into cash over time.

Average Receivable Collection Period Trend

The average collection period also shows variability with a slight improvement trend. It began at 20 days in early 2017, increased to 23 days mid-year, then decreased back to 19 days by the end of 2017. During 2018, the period oscillated between 19 and 23 days, reflecting inconsistent collection speed, but dropped to 17 days by the end of 2019. This decreasing trend in days indicates a quicker collection cycle towards the end of the period, complementing the rising receivables turnover ratio and reflecting improved cash flow management.

Overall Insight

The combined analysis of these two metrics reveals that the company has effectively strengthened its accounts receivable management over the given periods. While there were mid-year setbacks in 2017 and 2018 characterized by slower collection and lower turnover, the general direction through 2019 shows a marked improvement. This suggests operational adjustments or industry factors contributing to faster customer payments and improved liquidity.

The analysis of the financial data reveals notable patterns in the management of inventory, receivables, and the operating cycle over the observed periods.

Average Inventory Processing Period

The average inventory processing period exhibited moderate fluctuations across the quarters. Initially, it fluctuated between 13 and 14 days during the early quarters, then showed a slight downward trend reaching 11 days by the end of 2017. Subsequently, the period increased, peaking at 17 days in mid-2019, before declining again to 11 days by the end of 2019. This suggests variability in inventory turnover efficiency, with periods of both quicker and slower inventory processing.

Average Receivable Collection Period

Data for the average receivable collection period starts from the second quarter of 2017. The period ranged from 17 to 23 days, with some fluctuations between quarters. The collection period peaked around 23 days in mid-2017 and early 2018, indicating slower receivables turnover at those times, but generally showed a decreasing trend toward the end of 2019, reaching 17 days. This trend points to an improvement in the speed of collecting receivables as 2019 progressed.

Operating Cycle

The operating cycle, which combines inventory processing and receivable collection periods, demonstrated some volatility but a gradual improvement in operational efficiency overall. Starting at 32 days in mid-2017, the cycle peaked at 38 days mid-2019, reflecting a lengthening in operations during that period. However, by the end of 2019, the cycle had shortened significantly to 28 days, indicating a more streamlined and efficient operation by that time.

Overall, the data indicate fluctuating operational efficiency with a tendency toward improvements in inventory management and receivables collection by the end of the observed period. The shorter operating cycle observed in late 2019 suggests enhanced coordination between inventory processing and receivables management, potentially contributing to better cash flow and working capital utilization.

Payables Turnover

The payables turnover ratio demonstrates fluctuations throughout the observed periods. Initially, there is a slight decline from 13.91 to 11.81 over the first four quarters, indicating a slower rate of payables turnover. Subsequently, the ratio rises to a peak of 15.2 in April 2018, suggesting improved efficiency in managing payables. However, towards the end of the period, there is a noticeable decline to 11.92 in December 2019, reflecting reduced turnover efficiency. Overall, the payables turnover shows cyclical variability with periods of both improvement and decline.

Average Payables Payment Period

The average payables payment period, expressed in days, generally moves inversely to the payables turnover ratio. It begins with a gradual increase from 26 days to a maximum of 31 days by December 2016, indicating a lengthening of the time taken to pay suppliers. Afterward, a reduction to around 24-26 days is observed from early 2017 through mid-2019, reflecting quicker payment practices. Notably, there is a peak of 37 days in December 2018, which stands out as a significant extension in payment duration. The period concludes with an increase back to 31 days in December 2019. This pattern suggests variability in payment terms or cash management strategies over time.

Overall Insights

The interplay between payables turnover and average payment period indicates dynamic management of payables over the quarters. Periods of higher payables turnover coincide with shorter payment periods, denoting operational efficiency and possibly favorable supplier negotiations or strong cash flow. Conversely, extended payment periods align with reduced turnover ratios, which may reflect strategic decisions to optimize cash holdings or temporary liquidity pressures. The notable spike in payment period in December 2018 may warrant further investigation as it deviates from typical patterns. The data reveals that payables management undergoes fluctuations, impacted potentially by seasonality, business cycles, or strategic financial decisions.

Inventory Processing Period

The average inventory processing period shows some fluctuations but generally remains within a range of 11 to 17 days. The period decreased slightly toward the end of 2017, reaching a low of 11 days in December 2017, but then it increased again in the following quarters, peaking at 17 days in June 2019 before declining back to 11 days by the end of 2019. This suggests variability in inventory turnover efficiency over the analyzed quarters.

Receivable Collection Period

The average receivable collection period was not consistently available in the early quarters but, once reported from July 2016 onwards, it ranged mainly between 17 and 23 days. There is a slight downward trend observable towards the later quarters, with the collection period decreasing to 17 days by December 2019 from a high of 23 days in multiple earlier quarters, indicating a modest improvement in the speed of receivables collection.

Payables Payment Period

The average payables payment period shows some variation throughout the period, fluctuating between 24 and 37 days. There was a notable increase in December 2018, reaching 37 days, which is a significant spike compared to other quarters. Otherwise, the period generally fluctuates between 24 and 31 days with no clear long-term trend up or down, indicating some inconsistency in payment timing to suppliers.

Cash Conversion Cycle

The cash conversion cycle presents notable fluctuations, ranging from -3 to 13 days. Early values from July 2016 show a cycle of 6 to 10 days, with a sharp dip to -1 day in December 2018, indicating that payables were being paid after receivables were collected and inventory was processed (a positive operational liquidity indicator). However, by March and June 2019, the cash conversion cycle increased again to as high as 13 days before returning to a slightly negative value of -3 days at the end of 2019. Overall, the varying cycle length suggests changes in working capital management efficiency over the time reviewed.