Zoetis Inc. (NYSE:ZTS)

The analysis of key financial efficiency ratios and periods reveals several notable trends over the observed quarterly periods.

Inventory Turnover

The inventory turnover ratio shows a gradual decline from 1.31 in March 2020 to a low of around 0.91 in late 2023, with a slight recovery to 0.99 by March 2024. This inverse trend is mirrored by the increasing average inventory processing period, which rose from 280 days in early 2020 to a peak of over 400 days during 2023 before decreasing slightly to 370 days in the first quarter of 2024. This indicates a deceleration in inventory movement, suggesting potential challenges in inventory management or demand fluctuations during this period.

Receivables Turnover

The receivables turnover ratio remains relatively stable, fluctuating modestly between approximately 6.2 and 6.9 throughout the periods. Correspondingly, the average receivable collection period shows minor variation around the mid-50s in days, pointing to consistently effective collection efforts without significant deterioration or improvement in accounts receivable management.

Payables Turnover

Payables turnover has been somewhat volatile, initially declining sharply from 7.29 in early 2020 to 4.5 by the end of that year, then partially recovering and fluctuating between about 5.2 and 6.5 in subsequent quarters. The average payables payment period reflects this irregularity, extending from 50 days in early 2020 to as high as 81 days by the end of 2020, and then stabilizing around the high 50s to mid-60s range. This suggests a period of extended supplier payment terms or delayed payments that later moderated.

Working Capital Turnover

Working capital turnover shows a general recovery pattern. It dropped from 2.08 in early 2020 to about 1.42 mid-2020, then gradually improved to near 2.0 levels by early 2022, though it slightly declined thereafter to stabilize just below 2.0 in 2023 and early 2024. This may reflect some improvement in the efficiency with which working capital is utilized to generate sales, although not reaching the initial pre-pandemic efficiency levels.

Operating Cycle and Cash Conversion Cycle

Both the operating cycle and cash conversion cycle have elongated significantly over time. The operating cycle increased from approximately 336 days in early 2020 to over 420 days by early 2024. The cash conversion cycle follows a similar pattern, rising from 286 days to around 367 days in the same timeframe. This elongation indicates that the overall time taken from inventory acquisition through sales and collection of receivables, less the payment to suppliers, has increased, potentially creating pressure on liquidity and indicating slower turnover of operational assets.

In summary, the data reveals a trend of slowing inventory turnover and longer processing periods, stable receivables management, variable payables turnover with periods of extended payment terms, gradual improvements in working capital turnover, and a notably lengthening operating and cash conversion cycle. These patterns suggest increasing challenges in managing the supply chain and working capital efficiency, which may require strategic focus to optimize operational liquidity and turnover rates.

The financial data reveals several notable trends in the cost of sales, inventories, and inventory turnover over the analyzed quarterly periods.

Cost of Sales

The cost of sales demonstrates an overall upward trend from March 2020 through early 2024. Starting at 459 million USD in March 2020, it marginally fluctuates but generally increases over the years, peaking near 728 million USD in December 2023 before slightly declining to 643 million USD by March 2024. This increase reflects growing production or procurement costs corresponding with business expansion or inflationary pressures.

Inventories

Inventories show a consistent increase throughout the entire period. Beginning at 1,481 million USD in March 2020, inventory levels steadily rise to reach a high of approximately 2,744 million USD in September 2023. Although there is a minor reduction to 2,651 million USD in December 2023, inventories ascend again to 2,651 million USD by March 2024. This trend indicates accumulation of stock, possibly due to increased sales demand anticipation or supply chain adjustments.

Inventory Turnover Ratio

The inventory turnover ratio reveals a declining trend from 1.31 in March 2020 to a low around 0.91 by September 2023 and December 2023. A slight recovery is observed with the ratio reaching approximately 0.99 by March 2024. The decrease in turnover ratio over time suggests that inventory is moving more slowly, which may imply either slower sales velocity relative to inventory levels or strategic stockpiling. The recent uptick could signal improved inventory management or sales acceleration.

Collectively, the data suggests expanding operations with increased costs and stock levels, accompanied by a slowing inventory turnover ratio that slightly improves at the end of the period. This combination may warrant further investigation into inventory management efficiency and cost control to maintain operational effectiveness.

Revenue Trends

The revenue displayed a generally increasing trend from the first quarter of 2020 through the first quarter of 2024. Starting at 1,534 million USD in March 2020, it rose steadily with some minor fluctuations, reaching a peak of 2,213 million USD in December 2023 before slightly declining to 2,190 million USD in March 2024. The growth was relatively consistent, indicating stable demand and expansion over the observed period.

Accounts Receivable Patterns

The accounts receivable balance, net of doubtful accounts, showed an overall upward trajectory, increasing from 965 million USD in March 2020 to 1,293 million USD in March 2024. Despite several periodic fluctuations, the higher receivables balances correlate with the rising revenue, suggesting proportional growth in credit sales or collections practices maintaining alignment with revenue expansion.

Receivables Turnover Ratio Analysis

The receivables turnover ratio exhibited moderate variability across the quarters without a clear long-term upward or downward trend. Starting at 6.57 times in March 2020, the ratio fluctuated within a range roughly between 6.19 and 6.86 times, ending at 6.75 times in March 2024. These movements reflect changes in the efficiency of collections relative to sales volume, where the ratio generally remained stable, implying consistent credit management effectiveness despite increasing receivables and revenues.

The analysis of the quarterly financial data reveals several key trends in cost of sales, accounts payable, and payables turnover over the observed periods.

Cost of Sales

The cost of sales displays a generally upward trajectory from March 2020 through March 2024. Starting at 459 million USD in March 2020, it experienced a notable increase through 2020 and 2021, reaching a peak of 728 million USD in December 2023. Following this peak, there is a slight decline to 643 million USD by March 2024. The trend indicates sustained growth in operational expenses related to production or procurement, with a pronounced spike in the latter part of the timeline, possibly reflecting increased production volume, inflationary pressures, or supply chain cost increments.

Accounts Payable

Accounts payable amounts have shown moderate fluctuation over the quarters, beginning at 265 million USD in March 2020 and increasing to a higher range around 400-460 million USD in the years following. The data reflects growth in payables consistent with expanding operations or delayed payment terms. There are troughs and peaks, such as a significant increase from 457 million USD in December 2020 down to 346 million USD in March 2021, followed by recovery. From 2022 onwards, the values generally stabilize between approximately 388 and 464 million USD, suggesting a certain level of steadiness in the company's payment obligations.

Payables Turnover Ratio

This ratio, which measures the frequency at which payables are paid off during the period, exhibits some volatility but remains mostly within a narrow range from 4.5 to 7.29. Notably, the ratio declined sharply to 4.5 in December 2020, suggesting slower payment cycles during that quarter, potentially indicating cash flow management responses to external conditions. Afterwards, the ratio recovers and stabilizes around an average of approximately 6.0, with occasional fluctuations towards higher values such as 6.44 in September 2022 and 6.46 in March 2024. This implies a generally consistent payment efficiency, albeit with short-term variations.

In summary, the cost of sales has increased steadily, particularly accelerating in late 2023, which may reflect higher operational scale or cost pressures. Accounts payable have likewise increased but with more moderate variation, aligning with the cost increases. The payables turnover ratio maintains a stability that suggests consistent credit management practices, despite short-term adjustments possibly motivated by liquidity considerations or strategic supplier negotiations.

Working Capital

The working capital figures show fluctuations over the observed periods. Initially, there is a steady increase from 3,051 million US$ at the end of the first quarter 2020 to a peak of 5,211 million US$ by the third quarter of 2021. This is followed by a significant decline during 2022, reaching a trough of 3,600 million US$ in the second quarter 2022. After that, working capital recovers moderately and stabilizes around the 4,400 to 4,600 million US$ range through to the first quarter of 2024.

Revenue

Revenue exhibits a generally upward trend, starting at 1,534 million US$ in the first quarter of 2020 and increasing gradually over the quarters. There are minor quarter-to-quarter variations, but overall growth is evident, with revenue climbing to 2,190 million US$ by the first quarter 2024. Notable increases occur mid-2021 and again in 2023, illustrating continued expansion in sales performance.

Working Capital Turnover

The working capital turnover ratio demonstrates variability that corresponds to movements in both working capital and revenue. At the beginning of the period, the ratio is around 2.08 but declines to approximately 1.42 by the second quarter of 2020. It then stabilizes near 1.5 through 2021. With the reduction in working capital during 2022 amid steady revenue, the turnover peaks again above 2.2 in mid-2022, indicating improved efficiency in generating revenue from working capital during that period. However, the ratio declines somewhat after mid-2022 and remains more stable around 1.8 to 1.9 into early 2024.

Overall Insights

The data suggests that the company experienced increased working capital investment through 2021, possibly supporting its revenue growth. The subsequent drop in working capital during 2022, coupled with relatively stable or growing revenues, improved working capital efficiency temporarily, as seen in the turnover ratio spike. The later periods show signs of stabilization in both working capital and turnover ratios despite ongoing revenue growth, which may indicate a balanced approach to managing short-term assets and liabilities while maintaining sales momentum.

The analysis of the inventory management metrics reveals a discernible shift in the company's operational efficiency over the observed quarters. Specifically, the inventory turnover ratio exhibits a gradual decline from 1.31 at the beginning of the period to approximately 0.99 by the end, indicating a decrease in how frequently inventory is sold and replaced within a year. This downward trend suggests that inventory is moving more slowly through the company’s operations.

Corroborating this observation, the average inventory processing period, expressed in days, has increased correspondingly from 280 days to around 370 days. Such an increase implies that inventory is held longer before being sold, which could be indicative of excess stock levels, slower sales, or potential inefficiencies in inventory management.

The consistency between these two metrics—the inverse relationship between turnover ratio and processing period—reinforces the conclusion that the company's inventory management has become less effective over the timeframe. This slower turnover and extended holding period necessitate a closer investigation into demand forecasting, supply chain logistics, and inventory control policies to identify causes and mitigate potential impacts on liquidity and carrying costs.

Receivables Turnover Ratio

The receivables turnover ratio exhibits moderate fluctuations over the observed quarterly periods. Beginning at 6.57 in early 2020, it experiences slight declines and recoveries throughout 2020, maintaining a range between approximately 6.23 and 6.86. The highest value within this timeframe is 6.86 in late 2021, suggesting an improved efficiency in collecting receivables during that quarter. In 2022 and 2023, the ratio continues to fluctuate, with values generally oscillating between 6.19 and 6.82, culminating in a reading of 6.75 in the first quarter of 2024. Overall, the data suggest a relatively stable receivables turnover, without significant deterioration or substantial improvement over the period.

Average Receivable Collection Period (in days)

The average receivable collection period demonstrates an inverse pattern relative to the receivables turnover ratio, as expected. Initially, it stands at 56 days in early 2020, with minor variances between 53 and 59 days observed throughout the reporting quarters. Notably, the longest collection periods occur sporadically, such as 59 days in several quarters including Q2 2021, Q2 2022, and Q2 2023. The shortest periods, around 53 days, are noted sporadically as well, for example in Q4 2021 and Q1 2023. The collection period remains relatively consistent, indicating no major shifts in the company's efficiency in collecting receivables on average over the years examined.

Insights and Summary

Overall, both the receivables turnover ratio and average collection period indicate stable receivables management performance. There are small cyclical variations, but no clear trend of improvement or decline in collection efficiency. The quarterly variations may reflect normal operational fluctuations or seasonal impacts but do not suggest fundamental changes in the company's credit policies or collection effectiveness during the period under review.

Inventory Processing Period

The inventory processing period exhibits a clear upward trend over the analyzed timeframe, beginning at 280 days in March 2020 and increasing steadily to 370 days by March 2024. This indicates that the average duration for inventory turnover has lengthened significantly. Notably, the period shows minor fluctuations quarter to quarter but maintains an overall rising pattern, with notable acceleration from 2022 onwards, reaching a peak of over 400 days in late 2023 before slightly decreasing in the first quarter of 2024.

Receivable Collection Period

The average receivable collection period remains relatively stable throughout the years, fluctuating narrowly between 53 and 59 days. There is no pronounced upward or downward trend, indicating consistent efficiency in collecting receivables. Variations appear modest quarter over quarter without sustained directional movement, suggesting stable credit policies and customer payment behaviors.

Operating Cycle

The operating cycle reflects the combined impact of the inventory processing period and receivable collection period, showing a significant increase from 336 days in March 2020 to 424 days in March 2024. This trend closely parallels the rising inventory processing period, as the receivable collection period remains fairly constant. The operating cycle reaches a peak of 461 days in late 2023 before decreasing somewhat in early 2024. The extended operating cycle suggests a lengthening in the time needed to convert inventory and receivables into cash, which could impact liquidity and working capital management.

Payables Turnover

The payables turnover ratio demonstrates notable fluctuations over the observed periods. Initially, it declined sharply from 7.29 in March 2020 to 4.50 in December 2020, indicating slower payments to suppliers or increasing payables balance. Following this trough, the ratio recovered somewhat, with moderate variability, reaching around 6.46 by March 2024. This recovery suggests a partial return to faster payables processing or more disciplined payment management after the low point in late 2020.

Average Payables Payment Period

The average payables payment period exhibited a generally inverse pattern relative to payables turnover, as expected. Starting from 50 days in March 2020, it lengthened to a peak of 81 days by December 2020, consistent with the decreased turnover ratio. This elongation signals slower payment to suppliers during that timeframe. Subsequently, the payment period oscillated between the high 50s and upper 60s days, ending at 57 days in March 2024. This trend reflects a reversion to quicker payments compared to the end of 2020 but remaining above the shortest periods seen early in 2020.

General Observations

The inverse relationship between payables turnover and average payment period throughout the observed intervals aligns with standard financial dynamics, where lower turnover corresponds with longer payment durations. The significant shift during 2020 likely relates to external economic factors influencing payment practices. The post-2020 period reveals a stabilization with moderate improvements in payment efficiency but without returning to the pre-2020 efficiency levels entirely. These patterns indicate ongoing management balancing between cash flow preservation and supplier payment obligations.

Average Inventory Processing Period

The average inventory processing period exhibited a general upward trend throughout the analyzed timeframe. Starting at 280 days in March 2020, it increased steadily, reaching a peak of 403 days in September 2023. Subsequently, there was a decline to 365 days by December 2023, followed by a slight increase to 370 days in March 2024. This pattern suggests lengthening inventory turnover times initially, with a recent improvement in the latter quarters.

Average Receivable Collection Period

The average receivable collection period remained relatively stable over the periods, fluctuating mostly within a narrow range. Beginning at 56 days in March 2020, it showed minor variations, peaking at 59 days on occasions such as March 2021 and June 2023. The lowest periods were close to 53-54 days seen intermittently. Overall, the consistency implies steady management of receivables without significant volatility.

Average Payables Payment Period

The average payables payment period showed more pronounced fluctuations. It increased markedly from 50 days in March 2020 to a peak of 81 days in December 2020. Following this peak, the metric decreased and stabilized between approximately 57 and 69 days through 2021 to early 2024, with occasional minor rises and falls. This indicates changes in accounts payable management, including a temporary extension in payment periods in 2020, normalizing in subsequent years.

Cash Conversion Cycle

The cash conversion cycle mirrored the trends evident in inventory and receivables but showed overall elongation through the period. Starting at 286 days in March 2020, it increased to a high of 401 days in September 2023, indicating a longer duration between cash outflows and inflows. A decline followed, reaching 362 days in December 2023 before slightly increasing to 367 days in March 2024. The extended cycle reflects the increase in inventory processing period largely driving the upward trend, partially offset by stable receivables and payment periods.