Sherwin-Williams Co. (NYSE:SHW)

Inventory Turnover

Inventory turnover showed fluctuations over the reviewed years. It increased from 5.37 in 2020 to a peak of 5.92 in 2021, then decreased noticeably to 4.88 in 2022, followed by a recovery to 5.28 in 2023 and a slight decline to 5.2 in 2024. This pattern indicates variability in how efficiently inventory is being sold and replaced.

Receivables Turnover

The receivables turnover ratio experienced a gradual increase from 8.84 in 2020 to 9.67 in 2024, with minor fluctuations in between. This suggests an overall improvement in the company's effectiveness in collecting owed funds from customers over time.

Payables Turnover

Payables turnover steadily increased from 4.57 in 2020 to 5.31 in 2023, then slightly decreased to 5.28 in 2024. This trend reflects a consistent acceleration in the pace at which the company settles its payables, with a slight moderation in the last year observed.

Average Inventory Processing Period

The average inventory processing period in days followed an inconsistent trend. Starting at 68 days in 2020, it decreased to 62 days in 2021, then significantly increased to 75 days in 2022. Subsequently, it declined to 69 days in 2023 and then slightly rose to 70 days in 2024. These variations indicate changing speeds in inventory turnover cycles.

Average Receivable Collection Period

The average time taken to collect receivables shortened from 41 days in 2020 to 38 days in 2024, with a slight increase to 43 days in 2021 and 42 days in 2022 before improving again. This points to enhanced efficiency in turning receivables into cash over the period.

Operating Cycle

The operating cycle, calculated as the sum of inventory processing and receivable collection periods, showed a rise from 109 days in 2020 to 117 days in 2022, then dropped to 108 days in both 2023 and 2024. This indicates some fluctuations in the overall time taken to convert raw materials into cash from sales, with recent years showing stabilization.

Average Payables Payment Period

The average period for paying suppliers displayed a clear downward trend, decreasing from 80 days in 2020 to 69 days by 2022, and remaining steady at 69 days through 2024. This suggests quicker payments to suppliers over the analyzed timeframe.

Cash Conversion Cycle

The cash conversion cycle experienced considerable variation. It was 29 days in 2020, slightly decreased to 28 days in 2021, then rose sharply to 48 days in 2022. The cycle improved markedly to 39 days in 2023 and remained unchanged in 2024. The fluctuations imply changes in the company's efficiency in managing cash flow timing related to inventory, receivables, and payables.

Working Capital Turnover

Data for working capital turnover were unavailable for all periods, preventing any analysis of trends in this metric.

Cost of Goods Sold (COGS)

The cost of goods sold demonstrates an overall upward trend from 2020 through 2022, increasing from approximately $9,679 million to $12,824 million. However, in the subsequent years 2023 and 2024, there is a decline in COGS to about $12,294 million and $11,903 million respectively. This indicates that after peaking in 2022, the company experienced a reduction in the direct costs attributed to the production of goods sold.

Inventories

Inventories show a notable increase from 2020 to 2022, rising from roughly $1,804 million to $2,626 million. Following this peak in 2022, inventory levels decline in 2023 and 2024, falling to approximately $2,329 million and $2,288 million respectively. The initial rise in inventories could suggest accumulation or stockpiling, while the subsequent decrease may reflect improved inventory management or changes in demand and supply chain conditions.

Inventory Turnover Ratio

The inventory turnover ratio exhibits fluctuations over the five-year period. Starting at 5.37 in 2020, it improves to 5.92 in 2021, indicating more efficient inventory management or faster inventory movement. However, the ratio drops significantly to 4.88 in 2022, coinciding with the peak inventory levels that year. The turnover then recovers to 5.28 in 2023 and slightly decreases to 5.20 in 2024. These variations reflect changes in how quickly inventory is sold and replaced, with the lowest turnover ratio in 2022 suggesting slower movement of inventory during that year.

Overall Insights

The data shows that both cost of goods sold and inventory levels increased steadily until 2022, followed by declines in the next two years. The turnover ratio's decline in 2022 aligns with the buildup of inventories, potentially indicating overstocking or reduced sales velocity at that time. The improvement in inventory turnover in the following years suggests an adjustment towards better inventory efficiency. Together, these trends may illustrate a cycle of accumulation and subsequent normalization in inventory and associated costs.

Net Sales

Net sales demonstrated a consistent upward trajectory over the five-year period. From approximately 18.36 billion US dollars at the end of 2020, sales increased steadily each year, reaching nearly 23.10 billion US dollars by the end of 2023, with a slight moderation in growth to 23.10 billion US dollars in 2024. This indicates robust revenue expansion with a possible plateau in the final year.

Accounts Receivable, Net

Accounts receivable rose from about 2.08 billion US dollars in 2020 to a peak of 2.56 billion US dollars by the end of 2022. Subsequently, there was a decline in 2023 and further into 2024, falling to roughly 2.39 billion US dollars. This trend suggests an accumulation of receivables until 2022, followed by improved collections or more conservative credit policies thereafter.

Receivables Turnover Ratio

The receivables turnover ratio initially decreased from 8.84 in 2020 to 8.48 in 2021, signaling a slight slowdown in converting accounts receivable into cash. However, turnover improved beginning in 2022 and continued to increase steadily through 2024, reaching 9.67, the highest observed ratio in this period. This upward trend reflects enhanced efficiency in receivables management and faster collection cycles in the latter years.

Summary Insights

Overall, the data reveal strong sales growth accompanied by an initial increase and subsequent decrease in accounts receivable. The improvement in receivables turnover ratio after 2021 indicates that the company likely implemented measures to optimize working capital and enhance cash flow. The stabilization of net sales in 2023 and 2024 may warrant further analysis to understand market conditions or internal factors influencing revenue growth.

Cost of Goods Sold

The cost of goods sold (COGS) increased steadily from 9,679,100 thousand US dollars in 2020 to a peak of 12,823,800 thousand US dollars in 2022. Following this peak, there was a decline in the subsequent years, with COGS falling to 12,293,800 thousand US dollars in 2023 and further decreasing to 11,903,400 thousand US dollars by the end of 2024. This pattern suggests an initial period of rising costs, possibly driven by volume growth or increased input prices, followed by a phase of cost reduction or improved efficiency.

Accounts Payable

The accounts payable balance showed a consistent upward trend from 2,117,800 thousand US dollars in 2020 to 2,436,500 thousand US dollars in 2022. After reaching this high point, the balance declined gradually to 2,315,000 thousand US dollars in 2023 and then to 2,253,200 thousand US dollars in 2024. This trend mirrors the pattern observed in COGS, indicating potential improvements in payment terms or reduced procurement needs after 2022.

Payables Turnover Ratio

The payables turnover ratio improved over the entire period, increasing from 4.57 in 2020 to 5.28 in 2024. Notably, there was a significant jump between 2021 and 2022, moving from 4.74 to 5.26, and this higher level was maintained through 2023 and 2024 with only minor fluctuations. The increasing turnover ratio indicates faster payment to suppliers or a reduction in outstanding payables relative to the cost of goods sold, reflecting potentially strengthened liquidity management or negotiation of payment terms.

The analysis of the financial data over the five-year period reveals distinct trends in both working capital and net sales, with an absence of data for the working capital turnover ratio.

Working Capital

Working capital has experienced significant fluctuations and a general downward trend over the analyzed period. Starting at a negative value of -3,000 thousand US dollars in 2020, it drastically deteriorated to -665,800 thousand US dollars in 2021. Although there was a partial recovery to -53,000 thousand US dollars in 2022, working capital again declined sharply to -1,114,000 thousand US dollars in 2023, followed by further decline to -1,407,900 thousand US dollars in 2024. This consistent negative working capital suggests increasing short-term liquidity challenges or a strategic choice to operate with minimal net current assets.

Net Sales

Net sales have demonstrated a steady upward trajectory throughout the five-year span. Starting from 18,361,700 thousand US dollars in 2020, net sales rose to 19,944,600 thousand US dollars in 2021, followed by continuous growth each subsequent year, reaching 22,148,900 thousand US dollars in 2022, 23,051,900 thousand US dollars in 2023, and slightly further to 23,098,500 thousand US dollars in 2024. This indicates consistent revenue growth, albeit with a slowing rate of increase in the last observed year.

Working Capital Turnover Ratio

No data is available for the working capital turnover ratio during the examined periods, which limits the ability to assess the efficiency of the company in utilizing its working capital to generate sales.

In summary, while net sales have grown steadily and suggest a positive revenue trend, the deteriorating and persistently negative working capital raises concerns about the company's short-term financial health and operational liquidity. The absence of turnover ratio data impedes a full assessment of how effectively the company manages its working capital relative to sales generation. Further exploration into the underlying factors causing the negative working capital and its impact on operations would be prudent.

Inventory Turnover

The inventory turnover ratio experienced fluctuations over the five-year period. It increased from 5.37 in 2020 to a peak of 5.92 in 2021, indicating improved efficiency in inventory management. However, there was a noticeable decline to 4.88 in 2022, suggesting a slowdown in the rate at which inventory was sold or used. After this dip, the ratio recovered to 5.28 in 2023 but saw a slight decrease to 5.20 in 2024. Overall, despite some volatility, the inventory turnover remained relatively stable around the 5.2 to 5.9 range.

Average Inventory Processing Period

The average inventory processing period showed an inverse trend to the inventory turnover ratio. It shortened from 68 days in 2020 to 62 days in 2021, indicative of faster inventory movement during this period. This was followed by an increase to 75 days in 2022, correlating with the decreased turnover ratio and suggesting slower inventory processing. Subsequently, the period decreased again to 69 days in 2023 and marginally increased to 70 days in 2024. This indicates some variability but a tendency toward a processing duration slightly longer than in 2021.

Summary of Trends

The data reveals an inverse relationship between inventory turnover and average inventory processing period, consistent with typical inventory management dynamics. The year 2021 marked the most efficient inventory management with highest turnover and shortest processing period. The decline in efficiency in 2022, followed by partial recovery, implies potential operational challenges or changes in demand and supply chain conditions affecting inventory handling. The relative stabilisation in the more recent years suggests adjustments have been made to return inventory operations closer to earlier levels of efficiency, though not reaching the peak observed in 2021.

Receivables Turnover

The receivables turnover ratio shows a general upward trend over the five-year period. It started at 8.84 in 2020, experienced a slight dip in 2021 to 8.48, then gradually increased to reach 9.67 by the end of 2024. This indicates an improving efficiency in how quickly the company collects its receivables, suggesting enhanced credit management or stronger collection practices over time.

Average Receivable Collection Period

The average receivable collection period, measured in days, displays a declining trend across the years. It began at 41 days in 2020, slightly increasing to 43 days in 2021, before decreasing consistently to reach 38 days by the end of 2024. This reduction reflects a shorter duration for cash collection from customers, aligning with the improved receivables turnover ratio and indicating better liquidity management.

The financial data over the reported periods reflects several trends related to inventory management, receivables collection, and the overall operating cycle.

Average Inventory Processing Period

The average inventory processing period shows some variability across the years. It decreased from 68 days in 2020 to 62 days in 2021, indicating improved inventory turnover. However, it increased substantially to 75 days in 2022, which suggests a slower inventory movement or potential buildup of stock. In the subsequent years, this period reduced somewhat to 69 days in 2023 and marginally increased to 70 days in 2024, implying relatively stable but slightly slower inventory processing compared to 2021.

Average Receivable Collection Period

The receivable collection period slightly increased from 41 days in 2020 to 43 days in 2021, indicating a minor lengthening in the time taken to collect receivables. Thereafter, it showed a gradual improvement by decreasing to 42 days in 2022, 39 days in 2023, and further to 38 days in 2024. This downward trend reflects improved efficiency in managing and collecting receivables over time.

Operating Cycle

The operating cycle combines inventory processing and receivable collection periods. Initially, this cycle slightly decreased from 109 days in 2020 to 105 days in 2021, consistent with improvements seen in inventory processing. However, it increased significantly in 2022 to 117 days, reflecting the spike in inventory days that year. Subsequently, the operating cycle shortened to 108 days in 2023 and remained steady through 2024, suggesting efforts to stabilize operational efficiency after the 2022 peak.

Overall, the data indicates a noticeable fluctuation in the inventory processing period impacting the overall operating cycle, while receivable collection has steadily improved. This pattern highlights areas where operational management has experienced challenges and where progress has been made in receivables management.

Payables Turnover

The payables turnover ratio demonstrated a consistent upward trend from 4.57 in 2020 to a peak of 5.31 in 2023, slightly declining to 5.28 in 2024. This trend indicates an improving efficiency in settling payables over the observed period, with the company paying its suppliers more frequently year over year, reaching an optimum level around 2023 and maintaining that level into 2024.

Average Payables Payment Period

The average payables payment period decreased steadily from 80 days in 2020 to 69 days by 2022, then remained stable at this lower level through 2024. This reduction aligns with the increased payables turnover ratio, reflecting a shorter time frame in settling obligations to suppliers. The stabilization at 69 days suggests the company has optimized its payment cycle and is consistently adhering to this timeline.

Overall Insight

Over the five-year span, the data reveals a clear move toward enhanced payables management efficiency, with quicker payment cycles and a higher frequency of payables turnover. The stabilization of these metrics in the last two years suggests the company has solidified its payment practices at a more efficient level compared to earlier years.

Average Inventory Processing Period

The average inventory processing period exhibited fluctuations over the five-year span. It decreased from 68 days in 2020 to 62 days in 2021, indicating improved inventory turnover efficiency. However, it then increased significantly to 75 days in 2022, suggesting slower inventory movement during that year. The period decreased again to 69 days in 2023 and remained nearly stable at 70 days in 2024. Overall, the trend suggests some instability in inventory management, with a peak delay in 2022 followed by partial recovery.

Average Receivable Collection Period

The average receivable collection period showed a modest but consistent improvement. It increased slightly from 41 days in 2020 to 43 days in 2021, then decreased steadily to 42 days in 2022, 39 days in 2023, and further down to 38 days in 2024. This downward trend from 2021 onward reflects enhanced effectiveness in collecting receivables, reducing the time customers take to pay.

Average Payables Payment Period

The average payables payment period decreased meaningfully from 80 days in 2020 to 77 days in 2021, then dropped more sharply to 69 days in 2022. It stabilized at 69 days for both 2023 and 2024. This contraction suggests a strategic shift towards faster payments to suppliers post-2021, perhaps reflecting changes in supplier agreements or working capital policies.

Cash Conversion Cycle

The cash conversion cycle experienced notable variation. It was relatively stable at 29 days in 2020 and 28 days in 2021, but then increased sharply to 48 days in 2022, indicating a longer cycle to convert investments into cash. Following this spike, it improved to 39 days in both 2023 and 2024, although remaining above the initial two years. This pattern aligns with the inventory processing and payables payment period changes, suggesting that operational challenges in 2022 extended the cash conversion cycle before partial normalization.