Cadence Design Systems Inc. (NASDAQ:CDNS)

The short-term operating activity ratios exhibit varied trends over the observed period. Generally, a degree of increased volatility is apparent in the more recent quarters, particularly from the latter half of 2023 through the first half of 2025. Inventory management, accounts receivable collection, and overall working capital efficiency demonstrate distinct patterns that warrant further examination.

Inventory Turnover

Inventory turnover generally remained within a relatively narrow range between 2.90 and 3.25 from April 2022 through June 2023. A noticeable decline began in September 2023, reaching a low of 1.81 in September 2024, before partially recovering to 2.38 by December 2025. This suggests a potential slowdown in the rate at which inventory is sold, possibly indicating challenges with product demand or inventory management practices.

Receivables Turnover

Receivables turnover showed initial stability, fluctuating between 7.32 and 9.19 from December 2022 through September 2023. A more pronounced decrease commenced in December 2023, falling to a low of 5.61 in December 2025. This indicates a lengthening of the time it takes to collect receivables, potentially signaling issues with credit policies or customer payment behavior.

Working Capital Turnover

Working capital turnover experienced significant fluctuations. It rose from 4.07 in April 2022 to a peak of 10.61 in December 2023, then declined sharply to 1.75 in December 2024. A slight recovery to 1.81 was observed in September 2025, followed by another decline to 1.75 in December 2025. This volatility suggests substantial changes in the relationship between revenue and working capital investment, potentially linked to shifts in operational strategies or economic conditions.

Average Inventory Processing Period

The average inventory processing period generally increased over the period, moving from 125 days in April 2022 to 153 days in December 2025. This trend aligns with the declining inventory turnover and suggests that inventory is taking longer to convert into sales. The most significant increases occurred between September 2023 and December 2025.

Average Receivable Collection Period

The average receivable collection period exhibited an increasing trend, rising from 42 days in April 2022 to 65 days in December 2025. This increase corresponds with the decrease in receivables turnover, indicating a lengthening of the time required to collect payments from customers. A notable increase occurred in the latter half of 2024 and continued into 2025.

Operating Cycle

The operating cycle, representing the time to convert inventory into cash, also increased over the period, from 167 days in April 2022 to 218 days in December 2025. This lengthening cycle reflects the combined effect of the increasing inventory processing period and the increasing receivable collection period, suggesting a slower overall conversion of resources into cash.

In summary, the observed trends suggest a potential weakening in short-term operating efficiency. Declining turnover ratios and lengthening processing periods warrant further investigation to identify the underlying causes and implement appropriate corrective measures.

The inventory turnover ratio exhibits fluctuations over the observed period, generally trending downwards before showing some recovery in later quarters. Initial values indicate a relatively stable turnover, followed by a period of decline and subsequent variability.

Overall Trend

From April 2022 to December 2023, the inventory turnover ratio generally decreased. Starting at 2.91, it declined to a low of 2.39 by December 2023. Following this decline, the ratio experienced volatility, increasing to 2.79 in March 2024, then decreasing again to 1.81 in September 2024, before recovering to 2.38 by December 2025.

Initial Period (Apr 2, 2022 – Dec 31, 2022)

The ratio remained relatively consistent during this period, fluctuating between 2.90 and 3.17. This suggests a stable rate at which inventory was being sold and replenished.

Declining Phase (Mar 31, 2023 – Dec 31, 2023)

A noticeable downward trend is observed from March 2023 through December 2023. The ratio decreased from 3.12 to 2.39, indicating a slowing in the rate of inventory sales relative to average inventory levels. This could be attributable to various factors, including changes in demand, increased inventory levels, or potential obsolescence.

Volatile Recovery (Mar 31, 2024 – Dec 31, 2025)

The period from March 2024 to December 2025 demonstrates significant variability. The ratio peaked at 2.79 in March 2024, experienced a substantial drop to 1.81 in September 2024, and then recovered to 2.38 by December 2025. This volatility suggests potential inconsistencies in sales patterns or inventory management practices. The final value of 2.38 remains below the initial values observed in 2022.

Relationship to Cost of Revenue and Inventories

The declining turnover ratio during the period of March 2023 to December 2023 coincides with increasing cost of revenue and inventory levels. While cost of revenue increased overall, the growth in inventory outpaced the growth in cost of revenue, contributing to the lower turnover ratio. The subsequent volatility appears linked to fluctuations in both cost of revenue and inventory, with a particularly large increase in inventory observed in September 2024 contributing to the low turnover ratio for that period.

The receivables turnover ratio exhibits fluctuations over the observed period, spanning from April 2022 to December 2025. Initially, the ratio demonstrates relative stability, followed by a period of decline, and then a resurgence before ultimately trending downward again.

Initial Period (Apr 2, 2022 – Dec 31, 2022)

The receivables turnover ratio begins at 8.72 and experiences a slight decrease to 8.38, followed by a recovery to 8.78. A notable decline is then observed, falling to 7.32 by the end of 2022. This initial decline suggests a lengthening of the collection period for receivables during this timeframe.

First Recovery Phase (Mar 31, 2023 – Sep 30, 2023)

The ratio shows improvement in the first half of 2023, increasing from 7.54 to 8.62, peaking at 9.19. This indicates a more efficient collection of receivables during this period. However, the ratio then decreases to 8.36 by the end of 2023.

Subsequent Fluctuations (Dec 31, 2023 – Dec 31, 2025)

A significant drop to 7.37 is observed in the first quarter of 2024, followed by a slight increase to 7.76. The ratio continues to decline, reaching 6.82, 8.39, 7.59, and 6.90 in subsequent quarters. The most substantial decrease occurs in the final quarter of 2025, with the ratio falling to 5.61. This prolonged downward trend suggests a consistent lengthening of the receivables collection cycle and potentially increasing credit risk.

Overall, while there are periods of improvement, the general trend in receivables turnover is downward, particularly evident in the latter half of the analyzed period. This warrants further investigation into the company’s credit policies and collection practices to understand the underlying causes of the lengthening collection cycle.

The working capital turnover ratio exhibits considerable fluctuation over the observed period. Initially, the ratio increased significantly from April 2022 to December 2022, peaking at 10.61. Subsequently, the ratio declined and generally remained below 9.00 for the majority of the following quarters, stabilizing around the 1.80 range in the most recent periods.

Initial Increase (Apr 2, 2022 – Dec 31, 2022)

From April 2022 through December 2022, the working capital turnover ratio increased from 4.07 to 10.61. This suggests a more efficient utilization of working capital to generate revenue during this timeframe. The most substantial increase occurred between October 1, 2022, and December 31, 2022, indicating a particularly strong performance in the final quarter of 2022.

Subsequent Decline and Stabilization (Mar 31, 2023 – Dec 31, 2025)

Following the peak in December 2022, the ratio experienced a decline, reaching 1.75 by December 2023. It has remained relatively stable, fluctuating between 1.75 and 1.87, for the subsequent five quarters. This suggests a significant shift in the relationship between working capital and revenue generation. The lower turnover ratio indicates that a larger amount of working capital is now required to support each dollar of revenue.

Working Capital and Revenue Trends

The observed changes in the turnover ratio correlate with trends in both working capital and revenue. While revenue generally increased over the period, working capital experienced a substantial increase beginning in September 2024, contributing to the lower turnover ratio in the later quarters. The significant jump in working capital in the September 30, 2024, period is a key driver of the ratio’s decline.

Recent Performance (Sep 30, 2025 – Dec 31, 2025)

The ratio remained consistent at 1.81 in September 2025 and decreased slightly to 1.75 in December 2025. This suggests that the trend of lower working capital efficiency has persisted, and the company is continuing to require a larger investment in working capital to generate each dollar of revenue.

The average inventory processing period exhibited fluctuations over the observed timeframe. Initially, a decreasing trend was noted, followed by periods of increase and relative stabilization, and then a final increase. A detailed examination of the period reveals distinct phases in inventory management efficiency.

Initial Decreasing Trend (Apr 2, 2022 – Jul 2, 2022)

The average inventory processing period decreased from 125 days to 115 days. This suggests an improvement in inventory management efficiency during this period, potentially due to increased sales velocity or more effective supply chain practices.

Fluctuation and Stabilization (Jul 2, 2022 – Dec 31, 2022)

Following the initial decrease, the period fluctuated between 115 and 127 days. While not consistently decreasing, the values remained relatively close to the lower end observed previously, indicating a sustained, though not improving, level of efficiency. A slight increase to 126 days was observed in the final quarter of 2022.

Increasing Trend (Dec 31, 2022 – Sep 30, 2023)

A clear upward trend emerged, with the average inventory processing period increasing from 126 days to 141 days. This indicates a potential slowdown in inventory turnover, possibly due to factors such as decreased demand, overstocking, or supply chain disruptions. The corresponding inventory turnover ratio also decreased during this period.

Peak and Subsequent Decline (Sep 30, 2023 – Mar 31, 2024)

The period reached its highest point at 156 days in the December 2023 quarter, followed by a decrease to 119 days by the March 2024 quarter. This suggests a potential correction in inventory levels or a temporary improvement in sales. However, the inventory turnover ratio remained relatively low.

Recent Fluctuations and Increase (Mar 31, 2024 – Dec 31, 2025)

The period experienced further fluctuations, ranging from 112 to 153 days. A final increase to 153 days was observed in the December 2025 quarter. This recent increase, coupled with the lower inventory turnover ratio, suggests a potential re-emergence of the challenges observed in late 2022 and early 2023, potentially indicating a need to reassess inventory management strategies.

Overall, the average inventory processing period demonstrates a cyclical pattern with periods of improvement followed by periods of deterioration. The most recent data suggests a potential weakening in inventory efficiency, warranting further investigation.

The average receivable collection period exhibited fluctuations over the observed timeframe. Initially, the period remained relatively stable before demonstrating increased variability in later periods.

Overall Trend

The average receivable collection period generally trended upwards from 42 days in April 2022 to 65 days in December 2025. However, this increase was not linear, with periods of decrease interspersed throughout the observation window.

Initial Stability (Apr 2, 2022 – Oct 1, 2022)

From April 2022 to October 2022, the average collection period remained consistently between 42 and 44 days, indicating a stable and predictable collection process during this timeframe.

Increase and Subsequent Fluctuation (Dec 31, 2022 – Sep 30, 2023)

A noticeable increase to 50 days was observed in December 2022. This was followed by fluctuations, decreasing to 40 days by September 2023, before rising again to 44 days in December 2023.

Recent Increase (Dec 31, 2023 – Dec 31, 2025)

The period experienced a more pronounced upward trend from December 2023 onwards. It increased from 44 days to 54 days by December 2024, and continued to climb to 65 days by December 2025. This represents the longest average collection period observed during the analyzed period.

Potential Implications

The increasing trend in the average receivable collection period in the latter part of the period may suggest a lengthening of the cash conversion cycle. This could be due to factors such as changes in credit policies, slower customer payments, or a shift in the customer mix. Further investigation into these potential causes is warranted.

The observed changes in the average receivable collection period warrant continued monitoring to assess their impact on liquidity and working capital management.

The operating cycle, along with its component parts – average inventory processing period and average receivable collection period – exhibits fluctuating trends over the observed period. Generally, the operating cycle appears to be lengthening, particularly in the latter half of the analyzed timeframe.

Average Inventory Processing Period

The average inventory processing period demonstrates variability, generally ranging between 112 and 156 days. A slight decreasing trend is visible from April 2022 to March 2023, followed by an increase peaking at 201 days in September 2024. The period then decreases to 119 days in March 2025 before rising again to 153 days by December 2025. This suggests potential inconsistencies in inventory management efficiency, possibly influenced by seasonal factors or changes in supply chain dynamics.

Average Receivable Collection Period

The average receivable collection period fluctuates between 35 and 65 days. It generally remains relatively stable in the earlier periods, with a noticeable increase to 50 days in June 2023 and again in December 2024. The most significant increase occurs in December 2025, reaching 65 days. This lengthening collection period could indicate a potential slowdown in collecting payments from customers, potentially impacting cash flow.

Operating Cycle

The operating cycle shows an overall increasing trend. Starting at 167 days in April 2022, it generally rises, with a significant peak of 248 days in September 2024. While a decrease is observed in the first half of 2025, the cycle extends to 218 days by December 2025. This lengthening cycle is primarily driven by increases in both the inventory processing and receivable collection periods. The extended operating cycle implies that the company is taking longer to convert its investments in inventory and receivables into cash, which could tie up working capital and potentially impact liquidity.

The combined effect of the trends in inventory processing and receivable collection periods results in a prolonged operating cycle, particularly towards the end of the analyzed period. Further investigation into the underlying causes of these increases, such as changes in credit policies, inventory turnover rates, or customer payment behavior, is recommended.