Waste Management Inc. (NYSE:WM)

The financial ratios and operating cycle metrics demonstrate several notable trends over the analyzed period.

Inventory Turnover

The inventory turnover ratio decreased from 93.97 in 2017 to 75.33 in 2020, indicating a slower rate of inventory movement through the company. However, it showed a partial recovery in 2021, rising to 82.3. This suggests that the company experienced decreased efficiency in managing inventory in earlier years but improved somewhat by the end of the period.

Receivables Turnover

Receivables turnover ratio gradually declined from 8.02 in 2017 to a low of 7.26 in 2020 before recovering to 7.87 in 2021. This pattern indicates a slight deterioration in the effectiveness of credit and collection policies until 2020, followed by mild improvement.

Payables Turnover

Payables turnover ratio increased slightly from 8.67 in 2017 to 8.92 in both 2018 and 2019, then decreased steadily to 8.08 by 2021. The early period reflects quicker payment to suppliers, while the decline suggests a lengthening of payment periods during later years.

Working Capital Turnover

Working capital turnover data is only available for 2019 at 5.04, which limits trend analysis. This figure alone indicates the company generated somewhat over five times sales relative to working capital employed for that year.

Average Inventory Processing Period

The average number of days to process inventory generally remained stable at 4 days from 2017 to 2019 and returned to 4 days in 2021 after a one-day increase to 5 in 2020. This suggests minor fluctuations in inventory holding duration, with a slight delay in 2020 possibly reflecting supply chain or demand disruptions.

Average Receivable Collection Period

The collection period for receivables increased from 45 days in 2017 to 50 days in 2020, indicating slower collections from customers during this time, before reducing again to 46 days in 2021. This reflects temporary softness in cash inflows from customers that partially corrected in the final year.

Operating Cycle

The operating cycle, representing the time between inventory acquisition and cash collection, lengthened from 49 days in 2017 to 55 days in 2020 before decreasing to 50 days in 2021. This trend points to increased capital being tied up in operations during 2020 followed by some operational improvement.

Average Payables Payment Period

The company’s average duration to pay its suppliers slightly shortened from 42 days in 2017 to 41 days during 2018 and 2019, then extended to 45 days by 2021. Extending the payment period suggests the company may have been managing cash flows more conservatively in later years.

Cash Conversion Cycle

The cash conversion cycle increased from 7 days in 2017 to a peak of 11 days in 2020, indicating an increased period between outlay of cash to suppliers and cash received from customers. However, in 2021, it sharply decreased to 5 days, demonstrating enhanced cash efficiency.

Overall, the data reveals challenges in working capital management and operational efficiency, particularly during 2020, likely influenced by external disruptions. There are signs of recovery and improvement in 2021, with reductions in the operating and cash conversion cycles and some improvement in turnover ratios.

Operating Costs

The operating costs exhibit a generally increasing trend over the five-year period. Starting at 9,021 million US dollars in 2017, costs rise steadily to 9,496 million in 2019. A slight decline is observed in 2020, decreasing to 9,341 million, which could be indicative of operational efficiencies or reduced activity during that year. However, a significant increase occurs in 2021, with operating costs reaching 11,111 million, representing the highest value in the examined timeframe and suggesting either expansion activities, inflationary pressures, or cost escalations in operations.

Parts and Supplies

The expenditure on parts and supplies shows a consistent upward trajectory throughout the period. Beginning at 96 million US dollars in 2017, the value rises each year, reaching 135 million by 2021. This gradual increase may reflect higher maintenance needs, increased equipment usage, or inflation-related cost rises in procurement of parts and supplies.

Inventory Turnover Ratio

The inventory turnover ratio reveals a declining pattern from 93.97 in 2017 to 75.33 in 2020, indicating a decrease in the frequency at which inventory is sold or used over the year. This downward trend suggests slower inventory movement or accumulation of stock over time. However, in 2021, there is a partial recovery to 82.3, which may point to improved inventory management or increased demand leading to faster turnover relative to the previous year.

Operating revenues

Operating revenues exhibit a generally upward trajectory over the five-year period. Starting at $14,485 million in 2017, revenues increased modestly in the following two years, reaching $15,455 million in 2019. There was a slight dip in 2020 to $15,218 million, possibly reflecting external challenges during that period. However, a notable recovery and significant growth occurred in 2021, with revenues rising sharply to $17,931 million, indicating strong performance and potential expansion activities or increased demand.

Accounts receivable, net of allowance for doubtful accounts

The accounts receivable balance also increased consistently from $1,805 million in 2017 to $2,278 million in 2021. This steady increase aligns with the growth in operating revenues, suggesting that the rise in sales is accompanied by higher outstanding receivables. The rise in receivables indicates that while the company is generating more credit sales, it is also managing a larger amount of funds yet to be collected from customers.

Receivables turnover ratio

The receivables turnover ratio, which measures how efficiently the company collects its receivables, shows some variability but remains relatively stable across the years. The ratio decreased from 8.02 in 2017 to a low of 7.26 in 2020, implying a slower collection period during that year. This might have been influenced by the challenges faced in 2020. However, the ratio improved somewhat in 2021 to 7.87, indicating a partial recovery in collection efficiency. Overall, the receivables turnover suggests moderate fluctuations in credit management efficiency but no drastic changes over the timeframe.

Operating Costs

Over the five-year period, operating costs demonstrated a generally upward trend. Starting at 9,021 million US dollars in 2017, costs increased modestly each year through to 2019, reaching 9,496 million. There was a slight decrease in 2020 to 9,341 million, which was followed by a significant increase in 2021 to 11,111 million. The jump in 2021 represents a notable rise compared to the relatively steady increases in earlier years.

Accounts Payable

Accounts payable showed a consistent increase across the period. Beginning at 1,040 million US dollars in 2017, the figure remained relatively stable through 2018 (1,037 million), then increased gradually each year, reaching 1,375 million in 2021. This trend indicates a growing obligation to suppliers or creditors over time.

Payables Turnover Ratio

The payables turnover ratio, which indicates how often payables are paid off during the year, showed a declining pattern. It remained almost flat from 2017 to 2019 at about 8.67 to 8.92 but began decreasing in 2020 to 8.33, and further declined in 2021 to 8.08. This decline suggests that the company is taking longer to pay its payables, reflecting potentially extended payment terms or delays in payments relative to purchases.

Summary Insights

The combination of rising operating costs and increasing accounts payable alongside a decreasing payables turnover ratio suggests that the company might be experiencing higher operational expenses while extending its payment periods. The sharp increase in operating costs in 2021 may relate to changes in operational scale or cost pressures. The increase in accounts payable, coupled with slower turnover, might indicate a strategic move to manage cash flow by delaying payments or could signal potential liquidity or supplier relationship challenges.

Working Capital

The working capital exhibits significant fluctuations over the analyzed periods. It starts with a negative value of -638 million USD in 2017, improves to -463 million USD in 2018, and then experiences a notable positive increase, reaching 3,065 million USD in 2019. However, this improvement is short-lived as the working capital declines sharply back into negative territory with -13 million USD in 2020 and a further decline to -1,013 million USD in 2021. This volatility suggests potential challenges in liquidity management or changes in current asset and liability balances across the years.

Operating Revenues

Operating revenues display a generally upward trend from 2017 to 2021. The revenue increased steadily from 14,485 million USD in 2017 to 15,455 million USD in 2019, showing consistent growth. There was a slight dip to 15,218 million USD in 2020, which may reflect economic or market conditions during that year. However, revenues rebounded strongly to 17,931 million USD in 2021, marking the highest value in the timeframe and indicating robust sales performance or successful business expansion.

Working Capital Turnover

Working capital turnover data is sparse, with a single recorded ratio of 5.04 in 2019. This value indicates efficient use of working capital to generate operating revenues during that year. Due to the absence of data for other years, comprehensive trend analysis is not possible, but the 2019 figure aligns with the positive working capital observed in the same year, suggesting strong operational efficiency at that point in time.

Inventory Turnover Trend

The inventory turnover ratio shows a general decline from 93.97 in 2017 to 82.3 in 2021, with a notable drop to 75.33 in 2020. This decline suggests that the company's efficiency in managing and selling inventory has decreased over the observed period, indicating a slower rate of inventory movement especially in 2020. However, there was a slight recovery in 2021 compared to the previous year.

Average Inventory Processing Period Trend

The average inventory processing period remained fairly stable, fluctuating between 4 and 5 days over the five years. Specifically, it held steady at 4 days from 2017 through 2019, increased to 5 days in 2020, and returned to 4 days in 2021. This stability reflects consistent inventory handling times with only a brief increase during 2020.

Interrelation Between Ratios

Although the average inventory processing period remained mostly constant, the decline in inventory turnover ratio suggests other factors may have influenced the reduced efficiency in inventory management in certain years. The increase in processing days during 2020 aligns with the lowest turnover ratio, indicating potential challenges in inventory flow during that year.

Receivables Turnover

The receivables turnover ratio shows a generally declining trend over the five-year period. Starting at 8.02 in 2017, the ratio decreases to 7.72 in 2018, indicating a slight slowdown in the efficiency of collecting receivables. It marginally improves to 7.93 in 2019 but then dips to its lowest point at 7.26 in 2020 before recovering somewhat to 7.87 in 2021. This pattern suggests fluctuations in the company's ability to convert receivables into cash, with a notable dip in 2020 which could imply longer collection times or changes in credit policies.

Average Receivable Collection Period

The average receivable collection period, measured in days, mirrors the trend seen in the receivables turnover ratio. Initially at 45 days in 2017, it increases to 47 days in 2018, indicating a lengthening of the time taken to collect receivables. A slight improvement is observed in 2019 with the period reducing to 46 days. However, 2020 records the highest figure at 50 days, aligning with the decrease in turnover ratio and suggesting a delay in collections during that year. By 2021, the collection period shortens back to 46 days, indicating a recovery towards more efficient receivables management.

Overall Insights

Across the analyzed timeframe, the company experienced fluctuations in its receivables management efficiency. The deterioration in 2020 could reflect external factors impacting the company's cash flow or operational environment, possibly contributing to delayed collections. The subsequent improvement in 2021 suggests a positive adjustment or recovery in managing receivables. Monitoring these metrics is vital as they have direct implications for liquidity and cash conversion cycles.

Average Inventory Processing Period

The average inventory processing period remained relatively stable over the five-year span, fluctuating slightly between 4 and 5 days. It maintained a consistent duration of 4 days in most years, with a slight increase to 5 days in 2020, before returning to 4 days in 2021. This suggests a generally efficient inventory turnover process with minimal variation over time.

Average Receivable Collection Period

The average receivable collection period showed some variability during the period. Starting at 45 days in 2017, it increased to a peak of 50 days in 2020, indicating a slower collection of receivables that year. However, it decreased back to 46 days in 2021, approaching the earlier levels. These fluctuations may reflect changes in credit terms or collection efficiency.

Operating Cycle

The operating cycle exhibited a pattern consistent with the changes in the inventory processing and receivable collection periods. It remained around 49 to 51 days from 2017 to 2019, increased notably to 55 days in 2020, and then decreased to 50 days in 2021. The peak in 2020 suggests that the overall cash conversion process was longer that year, possibly impacted by external factors affecting both inventory handling and receivables collection.

Payables Turnover

The payables turnover ratio shows a decreasing trend over the five-year period. It started at 8.67 in 2017, rose slightly to 8.92 in both 2018 and 2019, then decreased to 8.33 in 2020 and further to 8.08 in 2021. This indicates that the company has been gradually slowing down its rate of paying its suppliers, as fewer turnovers suggest payments are being made less frequently within the year.

Average Payables Payment Period

The average payables payment period, measured in days, demonstrates an increasing trend from 2017 to 2021. Beginning at 42 days in 2017, it marginally decreased to 41 days for the next two years (2018 and 2019), then increased to 44 days in 2020 and further to 45 days in 2021. This trend corresponds inversely with the payables turnover ratio, implying the company is taking longer to settle its payables over time.

Combined Insights

The inverse relationship between the payables turnover ratio and the average payment period suggests a shift towards more extended payment terms or slower payment policies. This could be a strategic move to manage cash flow more efficiently or reflect changes in supplier agreements. However, the relative stability from 2017 to 2019 followed by a noticeable change from 2020 onwards may warrant further investigation into operational or market factors influencing payment behaviors during those years.

Average Inventory Processing Period

The average inventory processing period remained relatively stable over the analyzed period, holding steady at 4 days from 2017 through 2019. It increased slightly to 5 days in 2020 before returning to 4 days in 2021. This indicates a consistent efficiency in inventory turnover, with only a minor disruption in 2020 potentially reflecting operational adjustments or external factors.

Average Receivable Collection Period

The average receivable collection period showed a generally fluctuating trend. It started at 45 days in 2017 and increased to 47 days in 2018, then slightly improved to 46 days in 2019. In 2020, the period lengthened significantly to 50 days, suggesting slower collections, before improving back to 46 days in 2021. The spike in 2020 may indicate challenges in receivable management possibly related to market or economic disruptions during that year.

Average Payables Payment Period

The average payables payment period experienced a gradual increase throughout the period. Beginning at 42 days in 2017, it decreased marginally to 41 days for both 2018 and 2019, then lengthened to 44 days in 2020 and 45 days in 2021. This trend suggests a strategy toward extending payment terms with suppliers or a response to cash flow management needs.

Cash Conversion Cycle

The cash conversion cycle exhibited some volatility across the years. Starting at 7 days in 2017, it increased to 10 days in 2018, then slightly decreased to 9 days in 2019. There was a notable increase to 11 days in 2020, indicating a slower overall cash conversion process. However, in 2021, the cycle improved substantially, reducing to 5 days—the lowest point in the period—which may reflect enhanced operational efficiency or better synchronization of inventory, receivables, and payables management.