Zoetis Inc. (NYSE:ZTS)

Inventory Turnover

The inventory turnover ratio shows a generally declining trend from early 2020 through 2023, starting at 1.41 in March 2020 and decreasing to a low near 0.91 in the middle of 2023. There is a slight recovery toward the end of 2023 and into early 2024, reaching around 0.99. This indicates slower inventory movement and possibly increased inventory levels or reduced sales velocity over time.

Receivables Turnover

The receivables turnover ratio remains relatively stable with minor fluctuations, oscillating in a range approximately between 6.19 and 6.86. The ratio does not show a strong upward or downward trend, suggesting consistent efficiency in collection of receivables over the periods analyzed.

Payables Turnover

The payables turnover ratio experiences notable volatility. It starts higher around 6.62 to 7.29 in early 2020, drops below 5.0 by the first quarter of 2021, and then rebounds repeatedly, fluctuating around the 5.0 to 6.5 range through 2023 and early 2024. This indicates varying payment practices, with periods of slower and faster payments to suppliers.

Working Capital Turnover

The working capital turnover ratio decreases significantly from 2.13 in March 2020 to around 1.42 by September 2019, with some recovery and subsequent fluctuations around the 1.5 to 2.2 range. From late 2021 onwards, the ratio more consistently hovers near 1.8 to 1.9. This suggests changes in operational efficiency and possible variations in current asset and liability management over time.

Average Inventory Processing Period

The average inventory processing period exhibits a consistent upward trend over the years, increasing from 258 days in March 2020 to a peak of approximately 403 days in late 2023. There is a slight improvement to 365 days by early 2024. This trend reflects longer periods inventory remains in stock, which could impact liquidity and indicate challenges in inventory management.

Average Receivable Collection Period

Receivable collection days remain quite stable, fluctuating between 53 and 63 days without a clear directional trend. This stability reflects consistent credit and collection policies over the observed timeframe.

Operating Cycle

The operating cycle lengthens steadily from 321 days in early 2020 to around 461 days in mid-2023, followed by a slight decline to about 424 days by early 2024. The increase primarily reflects the extended inventory processing period, indicating a longer time to convert raw materials into cash through sales.

Average Payables Payment Period

The average payables payment period is variable, initially decreasing from 55 days in early 2020 to 50 days mid-2020, then rising to around 81 days by March 2021 before fluctuating between 57 and 69 days thereafter. These fluctuations suggest changes in supplier payment timing, possibly reflecting cash management strategies or supplier negotiations.

Cash Conversion Cycle

The cash conversion cycle lengthens from 266 days in March 2020 to a peak near 401 days in late 2023, then slightly decreases to roughly 367 days by March 2024. The extended cycle reflects slower conversion of investments in inventory and receivables into cash, primarily driven by longer inventory holding periods combined with relatively stable receivables and payables periods.

The analyzed data reveal several noteworthy trends related to cost of sales, inventories, and inventory turnover over the examined periods.

Cost of Sales

Cost of sales exhibited fluctuations with a general upward trajectory from 2019 to 2024. Starting at $518 million in March 2019, the figure decreased to its lowest point around $451 million by June 2020, coinciding with the early stages of the pandemic. Thereafter, there was a consistent increase, peaking at $728 million in December 2023 before slightly declining to $643 million by March 2024. This suggests increased production or sales activity in the latter years, with some volatility towards the end of the analyzed period.

Inventories

Inventory levels demonstrated a steady and significant increase across the entire timeframe. From a base of $1,361 million in March 2019, inventories rose continuously, reaching a high of $2,744 million in September 2023. Following this peak, there was a moderate decline to $2,564 million by December 2023, with a slight recovery to $2,651 million by March 2024. The persistent increase in inventories could indicate an accumulation of stock potentially due to demand forecasting, supply chain dynamics, or strategic stockpiling.

Inventory Turnover

The inventory turnover ratio, available from late 2019 onwards, shows a declining trend over the period. It started at 1.41 in September 2019, followed by a gradual decrease to a low of 0.91 by both June and September 2023. In the last two quarters, there was a mild improvement, with ratios rising to 1.00 and 0.99 by December 2023 and March 2024 respectively. This downward trend suggests that inventory was being turned over less frequently, which may reflect slower sales velocity or increased inventory holding periods.

In summary, the company experienced rising inventory levels alongside increasing cost of sales over the five-year period, while inventory turnover diminished, indicating changes in operational efficiency or market conditions affecting the speed at which inventory was sold. The slight recovery in turnover towards the end of the period may signal adjustments in inventory management or market demand returning to higher levels.

Revenue Trends

The revenue exhibits an overall upward trend from March 31, 2019, through March 31, 2024. Initially, there is steady growth, with revenue increasing from 1,455 million USD in the first quarter of 2019 to a peak of 1,807 million USD at the end of 2020. Subsequently, revenue fluctuates moderately, maintaining a range between approximately 1,900 million USD and 2,213 million USD from 2021 onwards. Notably, the revenue reached the highest recorded value of 2,213 million USD during the third quarter of 2023, followed by a slight decrease in the final quarter of 2023 and the first quarter of 2024.

Accounts Receivable Dynamics

Accounts receivable, net of allowance for doubtful accounts, also shows an increasing trend over the analyzed periods. Starting at 970 million USD in early 2019, the balances increased consistently, reaching a peak of 1,322 million USD by the second quarter of 2023. This indicates a growth in outstanding receivables over time, albeit with some minor declines in certain quarters (notably from mid-2022 onward). The fluctuations suggest some variability in collections or credit terms, but the overall trend correlates to the growth in revenue.

Receivables Turnover Ratio Analysis

The receivables turnover ratio, available from March 31, 2020, onwards, presents a relatively stable pattern ranging mainly between approximately 6.2 and 6.9 times per year. This ratio indicates the frequency with which receivables are collected during the year. Despite some quarter-to-quarter variance, the ratio reflects consistent efficiency in receivables collection relative to sales. The turnover does not show a significant trend upwards or downwards, implying that despite the increase in accounts receivable balances, collection practices have maintained steady performance relative to revenue growth.

Integrated Observations

When considering all three metrics together, the company appears to sustain revenue growth while managing accounts receivable reasonably well, as shown by the relatively stable receivables turnover. However, the growing absolute values of accounts receivable require continued attention to credit risk and collection processes to avoid potential liquidity impacts. The consistency of the receivables turnover ratio amidst increasing receivables and revenue is indicative of effective credit management practices during the period.

The data reveals distinct fluctuations in cost of sales, accounts payable, and payables turnover over the observed periods from the first quarter of 2019 through the first quarter of 2024.

Cost of Sales

The cost of sales exhibited variability with a general upward trajectory commencing from $518 million in the first quarter of 2019. A notable decline occurred during the first half of 2020, reaching a low of $451 million in the second quarter of 2020. Subsequently, the cost of sales recovered and experienced incremental growth, peaking at $728 million in the fourth quarter of 2023. By the first quarter of 2024, the cost of sales slightly decreased to $643 million. This trend indicates expansion with periodic contractions, possibly influenced by operational or market conditions.

Accounts Payable

Accounts payable showed an overall increasing pattern starting from $235 million in the first quarter of 2019. The figures experienced modest rises and declines but generally trended upward, reaching $457 million by the fourth quarter of 2020. Post-2020, the values fluctuated moderately but remained elevated compared to the earlier years, with values oscillating around the $400 million range in most quarters. The first quarter of 2024 reported accounts payable at $405 million, indicating relative stability after previous increases.

Payables Turnover Ratio

The payables turnover ratio exhibited considerable variation, reflecting changes in payment efficiency and supplier management. Starting from 6.62 in the fourth quarter of 2019, the ratio showed a declining trend into the end of 2020, dropping to 4.5. Following that period, volatility persisted with ups and downs between approximately 5.28 and 6.46 through the subsequent quarters. The ratio peaked at 6.46 in the last quarter of 2023 and remained around 6.23 by the first quarter of 2024, suggesting improved turnover relative to prior lows.

Overall, the financial metrics point to an expanding scale of operations as seen in the rising cost of sales and accounts payable. The fluctuating payables turnover ratio signals variations in payment practices or supplier terms that may merit further scrutiny to assess liquidity and working capital management trends.

The financial data reveals distinct trends across the quarters from March 2019 through March 2024. An examination of working capital shows variable levels over time, with some notable fluctuations that merit attention.

Working Capital

Working capital experienced an initial increase from March 2019 (US$ 3,297 million) to June 2020 (US$ 4,474 million), indicating an improvement in liquidity during this period. This peak was followed by a gradual decline through the latter part of 2021, reaching US$ 3,803 million in March 2022. Subsequently, working capital displayed recovery and some stability, rising again to over US$ 4,600 million in late 2023, before stabilizing near US$ 4,450 million by the first quarter of 2024.

Revenue

Revenue showed a steady upward trend overall, beginning at US$ 1,455 million in the first quarter of 2019 and increasing progressively each quarter. Some fluctuations were observed in 2020, with revenue dipping during the early quarters of the COVID-19 pandemic but recovering swiftly in the latter part of the year and continuing to grow in subsequent years. By March 2024, revenue reached approximately US$ 2,190 million, reflecting sustained growth over the observed period.

Working Capital Turnover Ratio

The working capital turnover ratio, which measures how efficiently working capital is used to generate revenue, exhibited considerable volatility. Initial values are missing, but beginning in December 2019, the ratio started at 2.13 and showed a downward shift towards 1.42 by June 2020. Following this, the ratio regained strength and remained around 1.5 for much of 2020 and 2021, then escalated to above 2.0 in the second and third quarters of 2022 before declining once again below 2.0 in 2023. The ratio stabilized near 1.9 by the early part of 2024.

Overall, the working capital position improved notably until mid-2020, followed by a period of contraction and stabilization. Revenue growth was consistent and resilient, with only minor interruptions during the early COVID-19 period. The working capital turnover ratio suggests fluctuating operational efficiency in utilizing working capital, with periods of both strengthening and weakening trends over the five-year span.

The data reveals a gradual decline in the inventory turnover ratio over the observed periods, indicating a slower rate at which inventory is sold and replaced. Starting from a ratio of 1.41 in March 2020, the turnover steadily decreases, reaching a low point of 0.91 in both September and December of 2023, before showing a slight rebound to 0.99 and 0.99 in December 2023 and March 2024 respectively. This downward trend suggests increasing challenges in managing inventory efficiently or changes in demand affecting sales velocity.

Correspondingly, the average inventory processing period exhibits an increasing trend, moving from 258 days in March 2020 to a peak of 403 days in September 2023. Such an increase in days indicates that inventory remains in stock for longer durations before being sold. This pattern is consistent with the observed decrease in inventory turnover, confirming that inventory is turning over less frequently. Although there is a slight reduction to 365 and 370 days in December 2023 and March 2024 respectively, the inventory still remains higher compared to earlier years.

Inventory Turnover Ratio Trends

Declined from 1.41 to a low of 0.91, indicating slower inventory movement.

Slight recovery noted in the most recent quarters but still below initial levels.

Average Inventory Processing Period

Increased substantially from 258 days to a high of 403 days, showing prolonged inventory holding periods.

The recent marginal decrease suggests a potential improvement but remains elevated relative to the start of the period.

Implications

The inverse relationship between the turnover ratio and processing period suggests a weakening in inventory management efficiency over the period analyzed.

Factors possibly influencing these trends could include changes in sales demand, supply chain disruptions, or strategic shifts in inventory policies.

The analysis of the quarterly financial ratios related to receivables turnover and average receivable collection period reveals several insights into the company's credit and collection efficiency over the observed periods.

Receivables turnover ratio

The receivables turnover ratio is available from March 31, 2020, onwards. It shows an initial increase from 5.76 at the beginning of the observed period to a peak of 6.86 by March 31, 2022, indicating an improvement in the company's ability to collect receivables. Following this peak, there is a modest decline with some fluctuations, with the ratio generally remaining around the mid-6 range, ending at 6.75 for March 31, 2024. The pattern suggests that the company enhanced its efficiency in converting receivables into cash up to early 2022 and then maintained a relatively stable turnover rate around the improved level.

Average receivable collection period (number of days)

The average collection period exhibits an inverse trend to the receivables turnover ratio, as expected. Starting at 63 days in March 31, 2020, the period decreases steadily to a low of 53 days by December 31, 2021, reflecting faster collection of receivables. Afterward, there is some volatility, with the period fluctuating between 53 and 59 days up to the end of the timeline, concluding at 54 days in March 31, 2024. This indicates that while the company managed to reduce the collection time significantly in the initial years, it has since stabilized its collection efficiency within a narrow range.

Overall, the data indicates that the company improved its receivables management effectiveness beginning in 2020, achieving better turnover and quicker collections until early 2022. Subsequent periods show maintenance of this enhanced performance with slight variations but no major deterioration. The stability in these ratios over the latest quarters suggests consistent collection policies and practices.

Average Inventory Processing Period

Over the observed timeframe, the average inventory processing period exhibits a general upward trend. Starting at 258 days in March 2020, there is a gradual increase, reaching 299 days by December 2019. From the end of 2019 onwards, the period continues to climb steadily, peaking around 403 days in December 2023. Early 2024 shows a slight decline to 370 days. This pattern indicates a lengthening duration of inventory holding, suggesting possible changes in inventory management efficiency or supply chain dynamics.

Average Receivable Collection Period

The average receivable collection period remains relatively stable throughout the periods under review. Initially measured at 63 days in March 2020, it shows a modest decrease and fluctuations within a narrow band between 53 and 59 days thereafter. There is no clear directional trend, indicating consistent collection practices with minor seasonal or operational variations.

Operating Cycle

The operating cycle demonstrates a clear increasing trajectory over the course of the data series. Beginning at 321 days as of March 2020, it rises progressively, reaching 355 days by the end of 2019, and continuing upwards towards a peak of 461 days in March 2023. This trend reflects the combined impact of a lengthening inventory processing period and relatively stable receivable collection. The increase suggests that the overall time taken from inventory acquisition to cash collection is extending, which may have implications for working capital management.

Payables Turnover Ratio

The payables turnover ratio shows variability throughout the analyzed periods, beginning at 6.62 and experiencing an increase to 7.29, followed by a decline to a low of 4.50. Subsequent quarters reveal fluctuations between approximately 5.28 and 6.44, with a general stabilization in the latter periods. The ratio ended at 6.46, indicating a recovery from earlier lows. This pattern suggests intermittent changes in how quickly payables are settled relative to purchases, potentially influenced by operational cycles or supplier payment strategies.

Average Payables Payment Period

The average payables payment period displays an inverse relationship to the turnover ratio and ranges from a high of 81 days to a low of 50 days across the observed quarters. Initial periods show an increase from 55 to 81 days, implying slower payment to suppliers during these months. Subsequently, the payment period reduces to around 57–60 days in the latest quarters, indicating quicker settlements. The fluctuation between longer and shorter payment periods reflects adjustments in cash management or supplier terms affecting payment timelines.

Overall Analysis

The data suggests a cyclical pattern in payables management, with periods of extended payment timelines followed by quicker turnover and vice versa. The alternating trends in payables turnover ratio and average payment period denote strategic or operational responses to external or internal factors. Toward the later quarters, a tendency towards more consistent and moderately brisk payment practices appears, as evidenced by the stabilization of both metrics around mid-range values.

Inventory Processing Period

The average inventory processing period shows a generally increasing trend from March 31, 2020, starting at 258 days and rising to a peak of 403 days by September 30, 2023. Following this peak, there is a slight decrease to 365 days on December 31, 2023, before increasing marginally again to 370 days by March 31, 2024. This indicates a lengthening in the time inventory remains in the system over the analyzed period, with a notable acceleration from mid-2021 onward.

Receivable Collection Period

The average receivable collection period fluctuates moderately throughout the periods, starting at 63 days in March 31, 2020, and generally oscillating between 53 and 59 days thereafter. There is no consistent upward or downward trend, but the values remain relatively stable, indicating consistent credit collection practices over time.

Payables Payment Period

The average payables payment period manifests variability, beginning at 55 days on March 31, 2020, dipping to 50 days by June 30, 2020, and then increasing sharply to 81 days on March 31, 2021. Following this peak, the period decreases to 57 days by March 31, 2024, with intermittent fluctuations. This suggests an initial extension in payment terms followed by a tightening in payables management in more recent quarters.

Cash Conversion Cycle

The cash conversion cycle closely mirrors the inventory processing period, starting at 266 days on March 31, 2020, and rising steadily to 401 days by September 30, 2023. Subsequently, a decrease to 362 days is observed by December 31, 2023, with a slight increase to 367 days by March 31, 2024. This pattern reflects the impact of longer inventory holding periods and the interplay with receivables and payables, indicating a lengthening of the cash conversion period overall, which may impact liquidity.