Lockheed Martin Corp. (NYSE:LMT)

An analysis of short-term operating activity ratios reveals several notable trends between 2021 and 2025. Generally, the period demonstrates increasing operational efficiency, though recent performance indicates potential emerging concerns in certain areas.

Inventory Management

Inventory turnover remained relatively stable, fluctuating between 18.46 and 19.45 over the five-year period. The average inventory processing period consistently held at 19 days, suggesting consistent inventory management practices. This indicates a consistent ability to convert inventory into sales.

Receivables Management

Receivables turnover experienced a significant decrease from 34.15 in 2021 to 19.24 in 2025. This decline is accompanied by an increase in the average receivable collection period, rising from 11 days in 2021 to 19 days in 2025. This suggests a lengthening of the time required to collect payments from customers, potentially indicating deteriorating credit terms or collection efficiency. The decrease in receivables turnover is a key area of concern.

Payables Management

Payables turnover also decreased substantially, falling from 74.34 in 2021 to 18.58 in 2025. Correspondingly, the average payables payment period increased from 5 days to 20 days over the same timeframe. This suggests the company is taking longer to pay its suppliers, potentially to manage cash flow, but could also strain supplier relationships. The dramatic shift in payables management is a significant change in operational strategy.

Overall Efficiency

Working capital turnover exhibited a strong upward trend, increasing from 11.52 in 2021 to 37.02 in 2025. This indicates improved efficiency in utilizing working capital to generate sales. However, this improvement appears to be driven by the changes in receivables and payables management, rather than core operational improvements. The operating cycle lengthened from 30 days to 38 days, mirroring the trends in receivables and payables. The cash conversion cycle initially decreased, reaching a low of 17 days in 2023, but stabilized at 18 and 19 days in the final two years.

In summary, while working capital turnover demonstrates positive trends, the declining receivables and payables turnover ratios, coupled with increasing collection and payment periods, warrant further investigation. The company appears to be strategically managing its payment terms and collection efforts, but the sustainability and potential consequences of these changes should be carefully evaluated.

The analysis reveals a generally stable inventory turnover ratio over the five-year period, with modest fluctuations. While operating costs and expenses demonstrate a consistent upward trajectory, inventories have also increased, resulting in a relatively contained inventory turnover.

Inventory Turnover Trend

The inventory turnover ratio experienced a slight decrease from 19.45 in 2021 to 18.68 in 2022. It then showed a minor recovery to 18.87 in 2023, followed by another decrease to 18.46 in 2024. The most recent year, 2025, indicates a slight increase to 19.13. This suggests a cyclical pattern with no significant or sustained directional change.

Inventory Levels

Inventories have steadily increased from US$2,981 million in 2021 to US$3,524 million in 2025. This growth in inventory levels parallels the increase in operating costs and expenses, indicating a potential correlation between production/sales activity and inventory holdings.

Operating Costs and Expenses

Operating costs and expenses have consistently risen throughout the period, moving from US$57,983 million in 2021 to US$67,429 million in 2025. This consistent increase suggests growth in the scale of operations. The relatively stable inventory turnover, despite rising costs, implies effective inventory management in relation to this operational expansion.

Overall, the observed trends suggest a balanced approach to inventory management. The company appears to be managing inventory levels in line with increasing operational activity, preventing substantial fluctuations in the inventory turnover ratio. The slight variations observed are likely attributable to normal business cycles and do not indicate a significant cause for concern.

The receivables turnover ratio exhibits fluctuations over the five-year period. Initial observations indicate a decrease followed by a recovery, and then a subsequent decline.

Overall Trend

The receivables turnover ratio decreased from 34.15 in 2021 to 26.34 in 2022, representing a significant reduction. A partial recovery was observed in 2023, with the ratio increasing to 31.69. This upward trend continued modestly into 2024, reaching 30.22. However, 2025 saw a substantial decrease to 19.24, the lowest value within the observed period.

Year-over-Year Changes

The largest year-over-year decrease occurred between 2021 and 2022, a decline of 7.81. The most significant increase was between 2022 and 2023, an improvement of 5.35. The decrease from 2024 to 2025 was substantial, at 11.00.

Relationship to Sales

Sales generally increased over the period, moving from 67,044 to 75,048. Despite this overall sales growth, the receivables turnover ratio did not consistently follow suit. The decline in the ratio in 2022 and, more dramatically, in 2025 suggests that the increase in sales was not matched by a proportional increase in the efficiency of collecting receivables. This could indicate a lengthening of the collection period or a change in credit policies.

Receivables, net

Net receivables increased from 1,963 in 2021 to 2,505 in 2022, then decreased to 2,132 in 2023 and 2,351 in 2024. A significant increase to 3,901 was observed in 2025. This increase in receivables, coupled with the declining turnover ratio in the same year, reinforces the possibility of slower collection rates or more lenient credit terms.

The observed trends suggest a potential weakening in the company’s ability to efficiently convert receivables into cash, particularly in the most recent year. Further investigation into the company’s credit and collection policies, as well as the aging of receivables, is warranted.

The accounts payable activity demonstrates considerable fluctuation over the five-year period. A significant decrease in payables turnover is observed between 2021 and 2022, followed by relative stability and then a further decline towards the end of the period. This is coupled with a substantial increase in accounts payable balances, particularly in the later years.

Payables Turnover

The payables turnover ratio decreased markedly from 74.34 in 2021 to 27.25 in 2022, indicating a slower rate of paying suppliers. The ratio remained relatively stable at 25.56 and 28.85 in 2023 and 2024, respectively, suggesting a consistent, albeit reduced, payment frequency. However, a further decline to 18.58 in 2025 is noted, representing the lowest value within the observed timeframe.

Accounts Payable

Accounts payable increased significantly from US$780 million in 2021 to US$2,117 million in 2022, coinciding with the initial drop in payables turnover. Balances continued to rise, reaching US$2,312 million in 2023 and US$2,222 million in 2024 before increasing substantially to US$3,630 million in 2025. This increase suggests the company is increasingly utilizing trade credit or experiencing delays in making payments to suppliers.

Operating Costs and Expenses

Operating costs and expenses generally increased throughout the period, from US$57,983 million in 2021 to US$67,429 million in 2025. While a slight decrease was observed between 2021 and 2022, the overall trend is upward. This increase in operational spending, combined with the changes in payables turnover and balances, suggests a potential shift in supplier relationships or payment strategies.

The combined trends suggest the company is taking longer to pay its suppliers, and the absolute amount of payables outstanding is increasing. This could be due to a variety of factors, including negotiating extended payment terms with suppliers, increased purchasing volume, or potential liquidity management strategies. Further investigation would be required to determine the underlying causes and assess the implications for the company’s financial health.

The working capital turnover ratio demonstrates a consistently increasing trend over the five-year period. Simultaneously, working capital itself has exhibited a decreasing trend. These movements suggest a growing efficiency in utilizing working capital to generate sales.

Working Capital Trend

Working capital decreased from US$5,818 million in 2021 to US$2,027 million in 2025. This represents a substantial reduction, indicating the company is managing its short-term assets and liabilities more tightly, or potentially reducing its investment in these areas.

Sales Trend

Sales experienced a slight decrease from US$67,044 million in 2021 to US$65,984 million in 2022, followed by consistent growth, reaching US$75,048 million in 2025. This upward trajectory in sales, coupled with decreasing working capital, is a key driver of the observed turnover ratio increase.

Working Capital Turnover Ratio Trend

The working capital turnover ratio increased significantly from 11.52 in 2021 to 37.02 in 2025. This indicates that for every dollar of working capital, the company is generating progressively more in sales. The increase is particularly pronounced from 2022 onwards, accelerating from 12.93 to 37.02 over the subsequent three years.

The combined effect of declining working capital and increasing sales has resulted in a substantial improvement in working capital efficiency. This could be due to improved inventory management, more efficient accounts receivable collection, or optimized accounts payable terms. Further investigation would be required to determine the specific factors contributing to this trend.

The average inventory processing period remained relatively stable over the five-year period examined, fluctuating between 19 and 20 days. While inventory turnover exhibited some variation, the average inventory processing period demonstrated minimal change, suggesting consistent efficiency in managing inventory levels relative to sales.

Average Inventory Processing Period

The average inventory processing period was 19 days in 2021. It increased to 20 days in 2022, then returned to 19 days in 2023. A slight increase to 20 days was observed in 2024, followed by a return to 19 days in 2025. This pattern indicates a consistent ability to convert inventory into sales within a narrow timeframe.

The slight fluctuations in the average inventory processing period do not appear to correlate strongly with the minor variations in inventory turnover. This suggests factors beyond simply the speed of sales are influencing how long inventory is held, potentially including supply chain dynamics or deliberate inventory management strategies.

Inventory Turnover & Processing Period Relationship

Inventory turnover decreased from 19.45 in 2021 to 18.68 in 2022, then slightly increased to 18.87 in 2023, decreased again to 18.46 in 2024, and finally increased to 19.13 in 2025. Despite these changes in turnover, the average inventory processing period remained largely unchanged. This decoupling suggests that while the rate at which inventory is sold varies, the time taken to process and convert inventory into sales remains stable.

Overall, the observed trends indicate a stable and predictable inventory management process. The consistency in the average inventory processing period is a positive indicator of operational efficiency.

The average receivable collection period exhibited relative stability for three years, followed by a notable increase. This analysis details the observed trends and potential implications.

Average Receivable Collection Period

The average number of days to collect receivables remained consistent at 11 days in 2021, increased to 14 days in 2022, and then stabilized at 12 days for both 2023 and 2024. A significant increase is observed in 2025, rising to 19 days. This represents the largest year-over-year change in the observed period.

The receivables turnover ratio, while not the primary focus, provides context. A decrease in receivables turnover is observed from 34.15 in 2021 to 26.34 in 2022, followed by a partial recovery to 31.69 in 2023 and 30.22 in 2024. The ratio then declines substantially to 19.24 in 2025. This decline in turnover aligns with the increase in the average collection period, suggesting a slower rate of converting receivables into cash.

The lengthening of the average collection period in 2025 warrants further investigation. Potential contributing factors could include changes in credit policies, a shift in the customer base towards those with longer payment terms, or difficulties in collecting outstanding balances. The combined effect of the increased collection period and decreased receivables turnover in 2025 suggests a potential slowdown in the efficiency of managing accounts receivable.

The operating cycle exhibited a generally increasing trend over the five-year period. While fluctuations occurred, the overall movement suggests a lengthening of the time required to convert raw materials into cash from sales.

Average Inventory Processing Period

The average inventory processing period remained remarkably stable, fluctuating between 19 and 20 days annually. This indicates consistent efficiency in managing inventory levels throughout the observed timeframe. No significant changes in inventory management practices appear to have occurred.

Average Receivable Collection Period

The average receivable collection period demonstrated more variability. It increased from 11 days in 2021 to 14 days in 2022, then decreased to 12 days in both 2023 and 2024. However, a notable increase to 19 days was observed in 2025. This suggests potential fluctuations in the company’s credit policies or customer payment behavior, with a more pronounced lengthening of collection times in the most recent year.

Operating Cycle

The operating cycle, calculated as the sum of the average inventory processing period and the average receivable collection period, increased from 30 days in 2021 to 38 days in 2025. The increase was not linear, with a jump from 32 days in 2024 to 38 days in 2025. This lengthening cycle implies that the company is taking longer to convert its investments in inventory and receivables into cash. The increase in 2025 is primarily driven by the rise in the receivable collection period, suggesting a potential area for further investigation regarding credit and collection processes.

The stability in inventory processing, contrasted with the fluctuations and ultimate increase in the receivable collection period, indicates that changes in accounts receivable management are the primary driver of the overall lengthening operating cycle. Continued monitoring of these trends is recommended.

The average payables payment period exhibited a generally increasing trend over the five-year period. Initially, the period was very short, but it lengthened considerably before stabilizing and then increasing again in the final year.

Average Payables Payment Period

In 2021, the average payables payment period was 5 days, indicating very rapid settlement of obligations to suppliers. A substantial increase was observed in 2022, rising to 13 days. This increase continued modestly in 2023, reaching 14 days. The period decreased slightly in 2024 to 13 days, suggesting a potential stabilization. However, 2025 saw a further increase, with the average payment period reaching 20 days. This represents the longest period within the observed timeframe.

The lengthening of the average payables payment period suggests a shift in the company’s payment practices or a change in the terms negotiated with suppliers. While a longer payment period can improve short-term cash flow, a significant or continued increase could potentially strain supplier relationships. The fluctuations observed warrant further investigation to understand the underlying causes and potential implications.

The short-term operating activity ratios indicate shifts in the company’s working capital management over the five-year period. Specifically, the average inventory processing period, average receivable collection period, and average payables payment period all exhibit fluctuations, ultimately influencing the cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period remained relatively stable, fluctuating between 19 and 20 days annually. This consistency suggests a stable efficiency in managing inventory levels throughout the observed period.

Average Receivable Collection Period

The average receivable collection period increased from 11 days in 2021 to 14 days in 2022, before decreasing to 12 days in both 2023 and 2024. A further increase to 19 days is observed in 2025. This suggests an initial lengthening in the time taken to collect receivables, followed by a period of improvement, and then a notable increase in the final year. This fluctuation warrants further investigation to determine the underlying causes, such as changes in credit terms or customer payment behavior.

Average Payables Payment Period

The average payables payment period demonstrated a more pronounced trend. It increased from 5 days in 2021 to 13 days in 2022, and then to 14 days in 2023. It remained at 13 days in 2024, before increasing to 20 days in 2025. This indicates a lengthening of the time taken to pay suppliers, potentially reflecting an effort to optimize cash flow or changes in supplier agreements.

Cash Conversion Cycle

The cash conversion cycle decreased from 25 days in 2021 to 21 days in 2022, and further to 17 days in 2023, representing an improvement in the company’s efficiency in converting its investments in inventory and receivables into cash. The cycle increased to 19 days in 2024 and 18 days in 2025. While still lower than the initial value in 2021, the recent stabilization and slight increase suggest that the benefits of earlier improvements may be leveling off, or are being offset by the changes in receivable and payable periods. The interplay between the inventory, receivable, and payable periods drives the overall cash conversion cycle.

Overall, the company demonstrated improved efficiency in its cash conversion cycle through 2023, but recent trends suggest a potential shift. Monitoring these ratios closely will be important to understand the sustainability of past improvements and the impact of recent changes in payment and collection practices.