Texas Instruments Inc. (NASDAQ:TXN)

An examination of short-term operating activity ratios reveals several noteworthy trends between 2021 and 2025. Generally, efficiency in inventory management declined while collection periods lengthened. Payables management exhibited fluctuations, and overall working capital turnover showed a mixed pattern.

Inventory Management

Inventory turnover decreased consistently from 3.12 in 2021 to 1.45 in 2024, before experiencing a slight recovery to 1.58 in 2025. This indicates a growing inefficiency in converting inventory into sales. Correspondingly, the average inventory processing period lengthened substantially, increasing from 117 days in 2021 to a peak of 252 days in 2024, and then decreasing slightly to 231 days in 2025. This suggests inventory is taking longer to sell.

Receivables Management

Receivables turnover exhibited a gradual decline from 10.78 in 2021 to 9.01 in 2025. This suggests a slowing pace of collecting receivables. The average receivable collection period increased steadily over the period, rising from 34 days in 2021 to 41 days in 2025, indicating it is taking longer to convert receivables into cash.

Payables Management

Payables turnover decreased from 10.45 in 2021 to 7.35 in 2022, then recovered to 8.10 in 2023, followed by a slight decrease to 7.98 in 2024, and a significant increase to 10.05 in 2025. The average payables payment period increased from 35 days in 2021 to 50 days in 2022, decreased to 45 days in 2023 and 46 days in 2024, and then decreased substantially to 36 days in 2025. These fluctuations suggest changes in supplier credit terms or payment strategies.

Overall Operating Efficiency

Working capital turnover initially increased from 1.65 in 2021 to 1.81 in 2022, but then declined to 1.37 in 2024 before recovering to 1.67 in 2025. This indicates a mixed trend in the efficiency with which working capital is used to generate sales. The operating cycle lengthened from 151 days in 2021 to 292 days in 2024, before decreasing to 272 days in 2025, reflecting the combined effect of slower inventory turnover and receivable collection. The cash conversion cycle followed a similar pattern, increasing from 116 days in 2021 to 246 days in 2024, and then decreasing to 236 days in 2025.

In summary, the period witnessed a general trend of decreasing efficiency in converting inventory and receivables into cash, although payables management showed some improvement in the final year. The lengthening of the operating and cash conversion cycles suggests a need to review and potentially optimize working capital management processes.

The receivables turnover ratio exhibited a declining trend over the five-year period. While revenue fluctuated, accounts receivable remained relatively stable, contributing to the observed changes in the turnover ratio.

Receivables Turnover Trend

The receivables turnover ratio decreased from 10.78 in 2021 to 9.01 in 2025. This indicates a lengthening of the average collection period for accounts receivable.

Year-over-Year Changes

From 2021 to 2022, the ratio experienced a slight decrease, moving from 10.78 to 10.57. A more pronounced decline occurred between 2022 and 2023, with the ratio falling to 9.80. The rate of decline accelerated from 2023 to 2024, reaching 9.10, and continued, albeit at a slower pace, to 9.01 in 2025.

Relationship to Revenue

Revenue increased from 2021 to 2022, but the receivables turnover ratio decreased slightly. Revenue then decreased in 2023 and 2024, coinciding with further declines in the receivables turnover ratio. Revenue increased again in 2025, but the receivables turnover ratio continued to decrease, suggesting factors beyond revenue are influencing collection efficiency.

Relationship to Accounts Receivable

Accounts receivable remained relatively consistent between 2021 and 2024, fluctuating between US$1,701 million and US$1,895 million. A noticeable increase to US$1,963 million occurred in 2025. The consistent accounts receivable levels, coupled with fluctuating revenue, explain a significant portion of the observed trend in the receivables turnover ratio. The increase in accounts receivable in 2025 likely contributed to the continued decline in the ratio.

The consistent decrease in the receivables turnover ratio warrants further investigation. Potential causes could include changes in credit terms offered to customers, a shift in the customer mix towards those with longer payment cycles, or a decline in the effectiveness of collection efforts.

The accounts payable activity demonstrates fluctuations over the five-year period. Cost of revenue generally increased, while accounts payable exhibited more variability. This impacted the calculated payables turnover ratio.

Cost of Revenue

Cost of revenue increased from US$5,968 million in 2021 to US$7,599 million in 2025. The increase was not linear, with a smaller rise between 2022 and 2023 (US$6,257 million to US$6,500 million) compared to the jump from 2024 to 2025 (US$6,547 million to US$7,599 million). This suggests potential shifts in production volume or input costs.

Accounts Payable

Accounts payable increased significantly from 2021 to 2022, rising from US$571 million to US$851 million. It then decreased slightly to US$802 million in 2023 and remained relatively stable at US$820 million in 2024 before declining to US$756 million in 2025. This pattern indicates potential changes in supplier credit terms or the timing of payments.

Payables Turnover

The payables turnover ratio decreased from 10.45 in 2021 to 7.35 in 2022, coinciding with the increase in accounts payable. It partially recovered to 8.10 in 2023, then decreased slightly to 7.98 in 2024. A notable increase to 10.05 occurred in 2025, aligning with the decrease in accounts payable and the substantial increase in cost of revenue. This suggests a more efficient use of trade credit in 2025.

The initial decline in the ratio suggests the company was taking longer to pay its suppliers, potentially leveraging extended payment terms. The subsequent fluctuations indicate a dynamic relationship between purchasing activity and payment practices. The 2025 increase suggests a return to faster payment cycles, possibly due to improved cash flow or a strategic decision to strengthen supplier relationships.

Overall, the observed trends suggest a complex interplay between cost of revenue, accounts payable management, and the efficiency of utilizing trade credit. Further investigation into the underlying reasons for these fluctuations would be beneficial.

The working capital turnover ratio exhibited fluctuations over the five-year period. Initial increases were followed by declines, with a recent upward movement. This suggests evolving efficiency in utilizing working capital to generate sales.

Working Capital Turnover Trend

The working capital turnover ratio increased from 1.65 in 2021 to 1.81 in 2022, indicating improved efficiency in converting working capital into revenue. However, this was followed by a decrease to 1.48 in 2023 and further to 1.37 in 2024, suggesting a diminishing ability to generate sales from each dollar of working capital. A recovery to 1.67 was observed in 2025.

The fluctuations in the working capital turnover ratio appear to correlate with changes in revenue. The increase in 2022 coincided with a rise in revenue, while the declines in 2023 and 2024 occurred alongside decreasing revenue figures. The 2025 increase in the ratio aligns with a revenue increase.

Relationship to Revenue

Revenue increased from US$18,344 million in 2021 to US$20,028 million in 2022, supporting the higher turnover ratio. Subsequently, revenue decreased to US$17,519 million in 2023 and US$15,641 million in 2024, which likely contributed to the lower turnover ratios during those years. Revenue then increased to US$17,682 million in 2025.

Working capital remained relatively stable throughout the period, ranging between US$10,591 million and US$11,802 million. The observed changes in the turnover ratio are therefore primarily driven by revenue fluctuations rather than significant shifts in working capital levels.

Working Capital Stability

Working capital demonstrated limited variation across the observed period. This suggests consistent management of current assets and liabilities. The ratio’s sensitivity to revenue changes indicates that even small revenue shifts can impact the efficiency with which working capital is employed.

The recent increase in the working capital turnover ratio in 2025, coupled with increased revenue, suggests a potential return to improved operational efficiency. Continued monitoring of this ratio will be important to confirm this trend.

The average inventory processing period exhibited a consistent upward trend from 2021 to 2023, followed by a slight decrease in the most recent period. This indicates a lengthening in the time required to convert inventory into sales, then a minor improvement. Concurrent changes in the inventory turnover ratio support this observation.

Average Inventory Processing Period

The average inventory processing period increased from 117 days in 2021 to 225 days in 2023, representing a substantial lengthening of the sales cycle for inventory. This suggests a potential slowdown in sales, increased inventory holding costs, or a shift towards slower-moving inventory items. A modest decrease to 231 days was observed in 2025, indicating a slight recovery in inventory management efficiency, but the period remains significantly higher than in 2021.

Inventory Turnover

Inventory turnover decreased from 3.12 in 2021 to 1.45 in 2024, mirroring the increase in the average inventory processing period. This decline signifies that inventory was sold and replenished less frequently over time. The slight increase to 1.58 in 2025 suggests a marginal improvement in sales relative to inventory levels, but the turnover rate remains considerably lower than the 2021 level. The inverse relationship between inventory turnover and the average inventory processing period is consistent with standard financial principles.

The combined trends suggest a potential challenge in inventory management. While the most recent period shows a slight improvement, the overall trend indicates a need to investigate the factors contributing to the increased time to sell inventory and the reduced frequency of inventory replenishment. Further analysis should focus on identifying the specific inventory components driving these changes and evaluating the effectiveness of inventory control policies.

An examination of short-term activity ratios reveals a consistent trend in accounts receivable management over the five-year period. Specifically, the receivables turnover ratio and the average receivable collection period demonstrate a clear pattern of change.

Receivables Turnover

The receivables turnover ratio experienced a gradual decline from 10.78 in 2021 to 9.01 in 2025. This indicates a decreasing efficiency in converting receivables into cash. The rate of decline appeared to slow between 2024 and 2025.

Average Receivable Collection Period

Correspondingly, the average receivable collection period increased steadily from 34 days in 2021 to 41 days in 2025. This suggests that, on average, it took progressively longer to collect payment from customers. The increase was consistent year-over-year, with a one-day increase observed between 2021 and 2022, 2022 and 2023, and 2023 and 2024, and a further one-day increase between 2024 and 2025.

The observed trends suggest a potential weakening in the company’s ability to efficiently manage its accounts receivable. Further investigation may be warranted to understand the underlying causes of this lengthening collection period, such as changes in credit policies, customer payment behavior, or the mix of customers.

The operating cycle has demonstrated a clear pattern of elongation over the analyzed period. Each component contributing to the cycle – average inventory processing period and average receivable collection period – has exhibited increasing values, contributing to the overall lengthening of the time required to convert raw materials into cash from sales.

Average Inventory Processing Period

The average inventory processing period has increased substantially from 117 days in 2021 to 252 days in 2024. While a slight decrease to 231 days is observed in 2025, the period remains significantly higher than the 2021 baseline. This suggests a growing inefficiency in managing inventory, potentially due to increased inventory levels, slower production processes, or obsolescence. The substantial increase between 2022 and 2023 warrants further investigation.

Average Receivable Collection Period

The average receivable collection period has shown a consistent, albeit more moderate, upward trend. Increasing from 34 days in 2021 to 41 days in 2025, this indicates a lengthening of the time it takes to collect payments from customers. This could be attributable to changes in credit terms offered to customers, a shift in the customer base towards those with longer payment cycles, or a decline in the effectiveness of collection efforts.

Operating Cycle

The operating cycle, representing the sum of the inventory processing and receivable collection periods, has increased from 151 days in 2021 to 292 days in 2024. The 2025 value of 272 days represents a slight contraction, but remains considerably longer than the initial period. This extended cycle ties up working capital for a longer duration, potentially impacting liquidity and requiring increased financing to support operations. The trend suggests a growing inefficiency in the overall cash conversion process.

The combined effect of increasing inventory processing and receivable collection periods has resulted in a prolonged operating cycle. Continued monitoring of these trends is recommended, alongside a detailed investigation into the underlying causes of the increases, to identify potential areas for improvement in working capital management.

The average payables payment period exhibited fluctuations over the five-year period. Initially, the period increased before decreasing again towards the end of the observed timeframe. Payables turnover demonstrated a corresponding, inverse relationship.

Average Payables Payment Period

The average payables payment period increased from 35 days in 2021 to 50 days in 2022, representing a 43% increase. This suggests the company took longer to settle its obligations to suppliers during this period. A subsequent decrease was observed in 2023, falling to 45 days, followed by a slight increase to 46 days in 2024. The period concluded with a further decrease to 36 days in 2025, returning to a level comparable to that of 2021.

Payables Turnover

Payables turnover decreased from 10.45 in 2021 to 7.35 in 2022, indicating a slower rate of paying off suppliers. The ratio then increased to 8.10 in 2023 and remained relatively stable at 7.98 in 2024. A notable increase to 10.05 was recorded in 2025, suggesting an accelerated rate of paying suppliers. This movement is consistent with the observed changes in the average payables payment period.

The observed trends suggest a potential shift in the company’s supplier relationships or payment strategies between 2021 and 2025. The increase in the payment period in 2022 could be attributed to negotiating extended payment terms with suppliers, or potentially, a temporary liquidity constraint. The subsequent decline in the payment period towards 2025 suggests a return to more efficient payment practices or improved cash flow management.

An examination of short-term operating activity reveals notable shifts in key metrics between 2021 and 2025. The average inventory processing period, average receivable collection period, average payables payment period, and the resulting cash conversion cycle all demonstrate distinct trends over the five-year period.

Average Inventory Processing Period

The average inventory processing period exhibits a consistent upward trend, increasing from 117 days in 2021 to 252 days in 2024. A slight decrease is then observed in 2025, with the period falling to 231 days. This suggests a lengthening in the time required to convert raw materials into finished goods and ultimately sell them, followed by a modest improvement in the most recent year.

Average Receivable Collection Period

The average receivable collection period shows a gradual, though relatively small, increase over the period. Starting at 34 days in 2021, it rises to 41 days in 2025. This indicates a lengthening in the time taken to collect payments from customers.

Average Payables Payment Period

The average payables payment period fluctuates over the five years. It increases from 35 days in 2021 to 50 days in 2022, then decreases to 45 days in 2023 and remains at 46 days in 2024, before falling to 36 days in 2025. This suggests varying levels of negotiation power with suppliers and/or changes in payment terms.

Cash Conversion Cycle

The cash conversion cycle demonstrates a clear increasing trend from 116 days in 2021 to 246 days in 2024. While still elevated, the cycle decreases slightly to 236 days in 2025. This lengthening cycle indicates that the company is taking longer to convert its investments in inventory and other resources into cash. The increase is primarily driven by the extended inventory processing period, with contributions from the increasing receivable collection period and fluctuations in the payables payment period.

Overall, the trends suggest a growing inefficiency in the company’s operating cycle, particularly concerning inventory management. The slight improvements observed in 2025 for both inventory processing and the cash conversion cycle may indicate the beginning of a corrective trend, but continued monitoring is warranted.