Sherwin-Williams Co. (NYSE:SHW)

An analysis of short-term operating activity ratios reveals several trends between 2021 and 2025. Inventory turnover decreased initially, then stabilized, while receivables and payables turnover exhibited more consistent patterns. Period metrics show fluctuations in the time taken to process inventory, collect receivables, and pay suppliers, ultimately impacting the cash conversion cycle.

Inventory Management

Inventory turnover declined from 5.92 in 2021 to 4.88 in 2022, suggesting a slower rate of inventory sales. However, it recovered somewhat to 5.28 in 2023 and remained stable at 5.20 for both 2024 and 2025. Correspondingly, the average inventory processing period increased from 62 days in 2021 to 75 days in 2022, before decreasing to 69 days in 2023 and stabilizing at 70 days for 2024 and 2025. This indicates that while inventory management improved slightly after 2022, it remained longer than the 2021 level.

Receivables Management

Receivables turnover generally increased from 8.48 in 2021 to 9.67 in 2024, indicating a more efficient collection of receivables. However, it decreased to 8.45 in 2025, returning to the 2021 level. The average receivable collection period decreased from 43 days in 2021 to 38 days in 2024, reflecting faster collection times, but increased back to 43 days in 2025. This suggests a potential weakening in receivables collection efficiency in the most recent year.

Payables Management

Payables turnover showed a modest increase from 4.74 in 2021 to 5.31 in 2023, then stabilized at approximately 5.25 through 2025. The average payables payment period decreased from 77 days in 2021 to 69 days in 2023, and remained at 69 days for 2024, before increasing slightly to 71 days in 2025. This indicates a generally consistent, and slightly improving, ability to manage payments to suppliers, with a minor lengthening of the payment period in the final year.

Operating and Cash Cycles

The operating cycle increased from 105 days in 2021 to 117 days in 2022, then stabilized around 108-113 days through 2025. The cash conversion cycle increased significantly from 28 days in 2021 to 48 days in 2022, then decreased to 39 days in 2023 and 2024, before increasing slightly to 42 days in 2025. The initial increase in the cash conversion cycle in 2022 was likely driven by the increase in the inventory processing period, while subsequent improvements were due to faster receivables collection. The slight increase in 2025 suggests a potential reversal of these gains.

Overall, the period between 2021 and 2025 demonstrates a dynamic operating environment. While improvements were observed in receivables and payables management, inventory management showed initial weakness followed by stabilization. The cash conversion cycle experienced volatility, indicating sensitivity to changes in inventory and receivables.

The inventory turnover ratio experienced fluctuations between 2021 and 2025. Initial observations indicate a decrease followed by a period of relative stability.

Inventory Turnover Trend

The inventory turnover ratio decreased from 5.92 in 2021 to 4.88 in 2022, representing a notable decline. Subsequently, the ratio increased to 5.28 in 2023, and then stabilized at 5.20 for both 2024 and 2025. This suggests a potential improvement in inventory management following the 2022 dip, followed by consistent performance.

Cost of Goods Sold

Cost of goods sold increased from US$11,401,900 thousand in 2021 to US$12,823,800 thousand in 2022. A decrease was then observed in 2023 to US$12,293,800 thousand, followed by a further decrease to US$11,903,400 thousand in 2024. The value increased slightly in 2025 to US$12,058,800 thousand. These fluctuations in cost of goods sold likely influenced the inventory turnover ratio.

Inventory Levels

Inventories increased significantly from US$1,927,200 thousand in 2021 to US$2,626,500 thousand in 2022, which corresponds with the decrease in inventory turnover. Inventory levels then decreased to US$2,329,800 thousand in 2023, and continued to decline to US$2,288,100 thousand in 2024. The inventory level remained relatively stable in 2025 at US$2,318,200 thousand. The increase in inventory in 2022 likely contributed to the lower turnover ratio observed in that year.

The stabilization of the inventory turnover ratio in the latter years of the period suggests that the company has found a balance between inventory levels and sales. Further investigation into the factors driving the cost of goods sold and inventory levels would provide a more comprehensive understanding of these trends.

The receivables turnover ratio exhibited a generally increasing trend from 2021 to 2023, followed by a slight decline in the most recent two years. This indicates fluctuations in the efficiency with which the company converts its credit sales into cash.

Overall Trend

The receivables turnover ratio increased from 8.48 in 2021 to 9.34 in 2023, representing a cumulative improvement of approximately 10.2%. This suggests a strengthening ability to collect receivables during this period. However, the ratio decreased to 9.67 in 2024 and further to 8.45 in 2025, partially reversing the earlier gains.

Year-over-Year Changes

From 2021 to 2022, the ratio increased from 8.48 to 8.64, a modest rise of 1.9%. The most significant year-over-year increase occurred between 2022 and 2023, with the ratio climbing to 9.34, representing a 8.1% improvement. The subsequent decrease from 2023 to 2024 was 3.3%, and the decline from 2024 to 2025 was 12.6%, indicating a weakening in receivables collection efficiency in the latter period.

Relationship to Net Sales

Net sales generally increased throughout the period, rising from US$19,944,600 in 2021 to US$23,574,300 in 2025. The initial increase in the receivables turnover ratio alongside rising sales suggests effective management of credit policies and collection efforts. However, the recent decline in the turnover ratio, coupled with continued sales growth, implies a potential buildup of accounts receivable, which warrants further investigation.

Accounts Receivable, Net

Accounts receivable, net, increased from US$2,352,400 in 2021 to US$2,563,600 in 2022, then decreased to US$2,388,800 in 2024 before rising again to US$2,791,200 in 2025. This pattern in accounts receivable balances corresponds with the fluctuations observed in the receivables turnover ratio, suggesting a direct relationship between the two metrics.

The accounts payable turnover ratio exhibits a generally stable pattern over the five-year period, with minor fluctuations. While there is some variation, the ratio remains within a relatively narrow range, suggesting consistent management of supplier credit and payment practices.

Overall Trend

The accounts payable turnover ratio increased from 4.74 in 2021 to 5.31 in 2023, indicating a more efficient use of accounts payable. However, the ratio then decreased slightly to 5.28 in 2024 and further to 5.12 in 2025. This suggests a potential easing of payment terms or a slight increase in the time taken to settle obligations to suppliers in the latter two years.

Year-over-Year Changes

The largest year-over-year increase occurred between 2021 and 2022, with a rise of 0.52. The increase from 2022 to 2023 was more modest, at 0.05. The subsequent declines were also relatively small, at 0.03 between 2023 and 2024, and 0.16 between 2024 and 2025.

Relationship to Cost of Goods Sold

The accounts payable turnover ratio is calculated using cost of goods sold in the numerator. Cost of goods sold experienced an increase from 2021 to 2022, followed by a decrease in 2023 and a further decrease in 2024, before a slight increase in 2025. The accounts payable balance remained relatively stable throughout the period, which contributes to the observed fluctuations in the turnover ratio. The ratio’s movements generally align with changes in cost of goods sold, though the impact of the stable accounts payable balance is evident.

In conclusion, the accounts payable turnover ratio demonstrates a generally healthy and consistent pattern. The slight decrease in the most recent year warrants monitoring to determine if it represents a shift in payment strategy or a temporary anomaly.

The analysis reveals a consistently negative working capital position over the observed period, ranging from approximately negative $665.8 million to negative $1.408 billion. Net sales demonstrate a general upward trend, increasing from $19.945 billion to $23.574 billion. Consequently, the working capital turnover ratio exhibits significant fluctuations, reflecting the interplay between negative working capital and increasing sales.

Working Capital Trend

Working capital is negative throughout the period, indicating that current liabilities exceed current assets. The most substantial negative balance is observed in 2024, at negative $1.408 billion. A decrease in the magnitude of the negative working capital is noted in 2025, moving to negative $912.9 million. This suggests a potential improvement in the short-term liquidity position, although it remains negative.

Net Sales Trend

Net sales show a consistent increase year-over-year. The growth rate decelerates slightly between 2022 and 2023, and again between 2023 and 2024, but remains positive. The increase from 2024 to 2025 is approximately 2.05%, continuing the overall upward trajectory.

Working Capital Turnover

Due to the negative working capital, the working capital turnover ratio will be negative. As net sales increase with consistently negative working capital, the absolute value of the ratio is expected to decrease. Calculating the ratio for each year reveals the following: 2021: -30.00, 2022: -41.79, 2023: -20.67, 2024: -16.40, 2025: -25.83. The ratio fluctuates, but generally moves towards less negative values, indicating that sales are increasing relative to the absolute size of the negative working capital. The largest absolute value is observed in 2022, while the smallest is in 2024.

The combination of negative working capital and increasing sales suggests the company is efficiently utilizing its limited current assets to generate revenue, but also relies heavily on short-term financing to fund operations. The trend in working capital turnover indicates a changing relationship between sales and the magnitude of the negative working capital, warranting further investigation into the company’s financing strategies and operational efficiency.

The average inventory processing period exhibited an increasing trend from 2021 to 2023, followed by stabilization in the subsequent two years. Simultaneously, the inventory turnover ratio demonstrated initial decline, followed by a period of relative consistency.

Average Inventory Processing Period

The average inventory processing period lengthened from 62 days in 2021 to 75 days in 2022, representing a 21% increase. A subsequent decrease to 69 days was observed in 2023. This metric then remained stable at 70 days for both 2024 and 2025. The initial increase suggests a potential slowdown in the rate at which inventory is sold and replenished. The stabilization in the latter years indicates that this slowdown has been addressed or has reached a new equilibrium.

Inventory Turnover

The inventory turnover ratio decreased from 5.92 in 2021 to 4.88 in 2022, indicating a reduced efficiency in inventory management during that period. The ratio experienced a slight recovery to 5.28 in 2023, and then remained consistent at 5.20 for both 2024 and 2025. This suggests that while initial challenges existed, the company has maintained a relatively stable rate of inventory conversion into sales in recent periods.

The concurrent trends in these two ratios suggest a potential relationship. The increase in the average inventory processing period in 2022 coincided with the decrease in inventory turnover, which could indicate that inventory was taking longer to sell, thus reducing the number of times inventory was turned over during the year. The stabilization of both metrics from 2023 onwards suggests a potential stabilization of inventory management practices.

The average receivable collection period exhibited a generally decreasing trend from 2021 to 2024, followed by a return to the initial level in 2025. This indicates a shifting pattern in how quickly the company converts its credit sales into cash.

Average Receivable Collection Period

The average receivable collection period decreased from 43 days in 2021 to 38 days in 2024. This suggests an improvement in the efficiency of collecting receivables over this period. The company was able to reduce the time it takes to receive payment from its customers. However, in 2025, the period increased back to 43 days, reversing the prior improvement.

The receivables turnover ratio, while not the primary focus, provides context. It increased from 8.48 in 2021 to 9.67 in 2024, supporting the observed decrease in the collection period. The increase in turnover suggests a higher frequency of receivables collection. The ratio then decreased to 8.45 in 2025, coinciding with the increase in the average collection period.

The reversal in both metrics in 2025 warrants further investigation. Potential factors contributing to this change could include alterations in credit policies, changes in customer payment behavior, or a shift in the sales mix towards customers with longer payment terms. The return to the 2021 levels suggests a potential cyclicality or a temporary disruption in the previously observed positive trend.

The operating cycle exhibited a generally increasing trend over the five-year period. While fluctuations occurred, the overall movement suggests a lengthening of the time required to convert raw materials into cash from sales.

Average Inventory Processing Period

The average inventory processing period increased from 62 days in 2021 to 75 days in 2022, indicating a slower turnover of inventory. This was partially offset by a decrease to 69 days in 2023, followed by stabilization at 70 days in both 2024 and 2025. The initial increase suggests potential inefficiencies in inventory management or a shift towards holding higher levels of inventory. The subsequent stabilization may indicate a successful implementation of inventory control measures or a consistent operational approach.

Average Receivable Collection Period

The average receivable collection period demonstrated a consistent downward trend from 43 days in 2021 to 38 days in 2024. This indicates an improvement in the speed at which the company collects payments from its customers. However, the period increased slightly to 43 days in 2025, potentially signaling a minor slowdown in collections or a change in customer payment terms. Overall, the collection period remained relatively efficient throughout the period.

Operating Cycle

The operating cycle, representing the sum of the inventory processing and receivable collection periods, increased from 105 days in 2021 to 117 days in 2022. A slight decrease to 108 days occurred in 2023, and remained constant in 2024. The cycle then increased again to 113 days in 2025. The trend largely mirrors the inventory processing period, with the improvements in receivable collection partially offsetting the lengthening inventory cycle. The increase in the operating cycle suggests that, on balance, it is taking longer to convert investments in inventory and receivables into cash.

The interplay between the inventory and receivables components of the operating cycle is noteworthy. While improvements were made in collecting receivables, the slower inventory turnover exerted a greater influence on the overall cycle length, particularly in 2022 and 2025.

The average payables payment period exhibited relative stability between 2022 and 2024, followed by a slight increase in the most recent year presented. This analysis details the observed trends in this metric and its relationship to payables turnover.

Average Payables Payment Period

The average payables payment period decreased from 77 days in 2021 to 69 days in 2022. This indicates an improvement in the speed at which obligations to suppliers were settled. The period remained constant at 69 days for the subsequent three years, 2022 through 2024, suggesting consistent payment practices. A minor increase to 71 days was observed in 2025, potentially signaling a slight lengthening of the time taken to pay suppliers.

Payables Turnover

Payables turnover increased from 4.74 in 2021 to 5.26 in 2022, coinciding with the decrease in the average payment period. This suggests a more efficient use of trade credit. The ratio continued to rise, reaching 5.31 in 2023, before stabilizing at 5.28 in 2024. A slight decrease to 5.12 was noted in 2025, which aligns with the observed increase in the average payables payment period.

The inverse relationship between payables turnover and the average payables payment period is evident. Higher payables turnover generally corresponds to a shorter payment period, and vice versa. The consistency in these metrics from 2022 to 2024 suggests stable supplier relationships and predictable cash outflow patterns related to accounts payable. The minor shifts in 2025 warrant continued monitoring to determine if they represent a developing trend.

The short-term operating activity of the company, as measured by key ratios, exhibits several notable trends over the five-year period. The cash conversion cycle demonstrates fluctuation, while individual components – inventory processing, receivable collection, and payable payment – show more moderate changes. Overall, the company appears to be managing its working capital with some variability.

Average Inventory Processing Period

The average number of days to process inventory increased from 62 in 2021 to 75 in 2022, indicating a slower turnover. This was partially offset by a decrease to 69 days in 2023, and remained stable at 70 days through 2024 and 2025. The initial increase suggests potential inefficiencies in inventory management in 2022, followed by some improvement, but ultimately settling at a level higher than the 2021 baseline.

Average Receivable Collection Period

The average number of days to collect receivables generally decreased from 43 days in 2021 to 38 days in 2024, suggesting improved efficiency in collecting payments from customers. However, this trend reversed slightly in 2025, with the collection period increasing to 43 days, returning to the initial value observed in 2021. This suggests a potential slowdown in collections towards the end of the period.

Average Payables Payment Period

The average number of days to pay suppliers decreased from 77 days in 2021 to 69 days in 2022 and remained constant through 2023 and 2024. A slight increase to 71 days is observed in 2025. This indicates a generally shorter payment cycle to suppliers, potentially reflecting improved supplier relationships or a strategy to optimize cash flow, with a minor lengthening in the final year.

Cash Conversion Cycle

The cash conversion cycle increased significantly from 28 days in 2021 to 48 days in 2022, driven primarily by the increase in the inventory processing period. It then decreased to 39 days in 2023 and remained at that level in 2024. A further increase to 42 days is observed in 2025. The cycle’s fluctuation suggests changes in the efficiency of converting investments in inventory and other resources into cash. The 2025 value indicates a return towards the higher end of the observed range.

In summary, the company experienced a period of increased working capital needs in 2022, as reflected in the cash conversion cycle. Subsequent years saw some improvement, but the cycle remained above the 2021 level, and a slight increase was observed in the most recent year. The individual components suggest a dynamic interplay between inventory management, collection efficiency, and payment terms.