Microsoft Corp. (NASDAQ:MSFT)

The short-term operating activity ratios exhibit considerable fluctuation over the observed period. Inventory turnover demonstrates a significant increase beginning in the December 31, 2023 period, peaking in the December 31, 2024 period, before declining somewhat in subsequent quarters. Receivables turnover generally remains within a narrower range, though a similar downward trend is observed in the latter half of the period. Payables turnover shows less pronounced changes, with a slight decline in the most recent quarters. Working capital turnover experiences a substantial surge in the December 31, 2023 period, followed by a decrease, stabilizing in the most recent periods.

Inventory Management

The average inventory processing period decreased substantially starting in the December 31, 2023 period, indicating a faster rate of inventory conversion to sales. This aligns with the increased inventory turnover. The period stabilizes at 4 days in the most recent four quarters, suggesting a consistently efficient inventory management process.

Receivables Management

The average receivable collection period fluctuates, generally remaining between 56 and 85 days. A slight upward trend is visible in the latter part of the period, potentially indicating a lengthening of the time required to collect receivables. This corresponds with the observed decline in receivables turnover.

Payables Management

The average payables payment period generally increased over the observed period, reaching its highest point in the December 31, 2025 period. This suggests a potential lengthening of payment terms taken from suppliers. The increase in this period may be a strategic decision to manage cash flow, but should be monitored for potential impacts on supplier relationships.

Operating and Cash Cycles

The operating cycle shows some variability, but generally remains around 80-100 days. The cash conversion cycle demonstrates a significant shift from negative values in the earlier periods to increasingly negative values in the later periods. This indicates a growing ability to convert investments in inventory and other resources into cash, and suggests improved liquidity management. The substantial negative values in the most recent quarters are particularly noteworthy.

Overall, the company demonstrates increasing efficiency in its operating cycles, particularly in inventory management and cash conversion, especially from late 2023 onwards. However, the trends in receivables and payables warrant continued monitoring to ensure optimal working capital management and maintain healthy relationships with both customers and suppliers.

The inventory turnover ratio exhibits considerable fluctuation over the observed period, spanning from September 2020 to December 2025. Initially, the ratio demonstrates a strong upward trend, peaking in December 2020 at 25.21 before gradually declining through June 2021. A period of relative stability follows, with the ratio fluctuating between approximately 15 and 23 from September 2021 through June 2023. A significant and dramatic increase is then observed, beginning in September 2023, reaching a high of 88.10 in December 2024, before moderating slightly to 90.61 in December 2025.

Overall Trend

The overall trend is characterized by volatility. While there are periods of decline and stabilization, the most striking feature is the substantial surge in inventory turnover beginning in late 2023 and continuing into 2025. This suggests a significant acceleration in the rate at which inventory is being sold.

Initial Period (Sep 2020 – Jun 2021)

From September 2020 to June 2021, the inventory turnover ratio increased from 17.25 to 25.21, then decreased to 19.81. This initial increase could be attributed to increased sales velocity or a reduction in inventory levels. The subsequent decline may indicate a build-up of inventory or a slowdown in sales.

Stable Period (Sep 2021 – Jun 2023)

Between September 2021 and June 2023, the ratio remained relatively stable, fluctuating between 15.10 and 26.35. This suggests a consistent, though not exceptional, rate of inventory conversion during this timeframe. The consistency could be due to stable demand and effective inventory management practices.

Significant Increase (Sep 2023 – Dec 2025)

A marked increase in inventory turnover is evident from September 2023 onwards, rising from 22.24 to 90.61 by December 2025. This substantial jump suggests a considerable improvement in inventory management efficiency, potentially driven by increased demand, successful promotional activities, or a deliberate reduction in inventory holdings. The ratio’s peak in December 2024 at 88.10, followed by a slight decrease, indicates that while the rate remains high, it may be normalizing somewhat.

Supporting Financial Item Analysis

The increase in inventory turnover correlates with a decrease in inventory levels, particularly noticeable from September 2023 onwards. Simultaneously, the cost of revenue generally increased over the period, indicating higher sales volumes contributing to the faster inventory turnover. The substantial increase in cost of revenue in December 2023 and beyond aligns with the observed surge in the inventory turnover ratio.

In conclusion, the inventory turnover ratio demonstrates a dynamic pattern, culminating in a significant acceleration in the rate of inventory conversion in the latter part of the analyzed period. This trend is supported by concurrent changes in both inventory levels and cost of revenue, suggesting a fundamental shift in inventory management or sales dynamics.

The receivables turnover ratio exhibits fluctuations over the observed period, spanning from September 2020 to December 2025. Generally, the ratio demonstrates a pattern of variability without a consistently strong upward or downward trajectory. However, distinct periods of relative stability and change are discernible.

Initial Period (Sep 2020 - Dec 2020)

A decrease in the receivables turnover ratio is observed, moving from 6.44 to 5.61. This suggests a lengthening of the average collection period for receivables during this timeframe, potentially due to changes in credit terms or collection efficiency.

Recovery and Fluctuations (Mar 2021 - Jun 2021)

The ratio experiences a partial recovery to 6.08 in March 2021, followed by a significant decline to 4.42 by June 2021. This sharp decrease indicates a substantial slowdown in the rate at which receivables are being collected, possibly linked to seasonal factors or specific business events.

Stabilization and Subsequent Decline (Sep 2021 - Dec 2022)

The ratio stabilizes around the 6.44-5.52 range for several quarters, before decreasing to 5.70 by December 2022. This period suggests a more consistent, though slightly declining, collection rate.

Further Variability (Mar 2023 - Jun 2024)

The ratio continues to fluctuate, reaching a low of 4.35 in June 2024. This represents the lowest point in the observed period and warrants further investigation into potential causes, such as extended payment terms or increased credit risk. A slight increase to 4.31 is noted.

Recent Trend (Sep 2024 - Dec 2025)

A modest recovery is seen, with the ratio increasing to 5.43, 5.22, 4.03, 5.55, 5.40. The most recent value, 5.40, indicates a slight improvement in receivables collection efficiency, but remains below the levels observed in earlier periods. The final value of 5.40 suggests a potential stabilization, but continued monitoring is recommended.

Overall, the receivables turnover ratio demonstrates a lack of consistent trend. While periods of stability are present, notable declines, particularly in June 2021 and June 2024, require attention. The fluctuations suggest that factors influencing the collection of receivables are dynamic and may be subject to seasonal variations, changes in customer behavior, or adjustments to credit policies.

The accounts payable turnover ratio for the analyzed period demonstrates fluctuations, generally trending downwards in the later quarters. Initially, the ratio exhibited relative stability, followed by increased variability and a noticeable decline towards the end of the observed timeframe. This suggests evolving dynamics in the company’s payment practices and supplier relationships.

Initial Period (Sep 30, 2020 – Dec 31, 2021)

The payables turnover ratio remained relatively consistent, fluctuating between 3.70 and 3.80. This indicates a stable pattern of utilizing accounts payable, with the company paying its suppliers approximately 3.7 to 3.8 times per year during this period. There were no significant deviations suggesting consistent management of short-term liabilities.

Fluctuating Period (Mar 31, 2022 – Jun 30, 2023)

A period of increased fluctuation is observed, with the ratio decreasing to a low of 3.30 in June 2022, then increasing to 4.28 in December 2022, before declining again to 3.64 in June 2023. This variability could be attributed to changes in purchasing volume, negotiation of payment terms with suppliers, or shifts in the timing of invoice processing. The peak in December 2022 suggests a potentially accelerated payment cycle during that quarter.

Downward Trend (Sep 30, 2023 – Jun 30, 2025)

A clear downward trend emerges in the latter part of the period. The ratio decreased from 3.89 in September 2023 to 2.57 in December 2025. This decline indicates a slowing in the rate at which the company is paying its suppliers. Potential reasons include extending payment terms to improve cash flow, a decrease in purchases, or a build-up of payable balances. The most significant drop occurs between September 2025 and December 2025, warranting further investigation.

Cost of Revenue & Accounts Payable Relationship

While cost of revenue generally increased over the period, the accounts payable balance also exhibited an overall upward trend, particularly from March 2022 onwards. However, the rate of increase in accounts payable appears to have outpaced the growth in cost of revenue in the later quarters, contributing to the observed decline in the payables turnover ratio. This suggests the company is taking longer to pay its suppliers despite increased purchasing activity.

In conclusion, the payables turnover ratio demonstrates a shift from relative stability to increasing variability and a subsequent downward trend. This evolving pattern suggests changes in the company’s financial management strategies related to accounts payable and warrants further investigation to understand the underlying drivers and potential implications for liquidity and supplier relationships.

The working capital turnover ratio exhibits a dynamic pattern over the observed period. Initially, the ratio demonstrates an increasing trend from September 2020 through December 2021, followed by a period of fluctuation and then a significant decline. A detailed examination reveals distinct phases in the company’s operational efficiency regarding working capital utilization.

Initial Increasing Trend (Sep 2020 – Dec 2021)

From September 2020 to December 2021, the working capital turnover ratio increased from 1.37 to 1.91. This indicates a growing efficiency in utilizing working capital to generate revenue. The company was able to support higher sales volumes with a relatively stable level of working capital investment during this timeframe. This improvement suggests enhanced management of inventory, accounts receivable, and accounts payable.

Fluctuation and Stabilization (Mar 2022 – Jun 2023)

Following the peak in December 2021, the ratio experienced some volatility, ranging between 2.52 and 2.77 before stabilizing around 2.65. This suggests a period where the company maintained a consistent level of efficiency in converting working capital into sales, despite minor fluctuations in either revenue or working capital levels. The ratio remained elevated compared to the earlier period, indicating continued effective working capital management.

Significant Decline (Sep 2023 – Dec 2025)

A substantial decrease in the working capital turnover ratio is observed starting in September 2023. The ratio jumps to 8.63 in September 2023, then declines steadily to 6.09 by March 2025. This dramatic shift suggests a significant change in the relationship between working capital and revenue. The large value in September 2023 is likely due to a substantial decrease in working capital, while revenue remained relatively stable. The subsequent decline indicates that the company is generating less revenue for each dollar invested in working capital. This could be attributed to factors such as increased inventory levels, slower collection of receivables, or extended payment terms to suppliers. Further investigation is warranted to understand the underlying causes of this decline.

Overall, the observed pattern indicates a shift in the company’s operational dynamics. While initial periods demonstrated improving efficiency, the recent decline in the working capital turnover ratio signals a potential area of concern that requires further scrutiny and strategic adjustments.

The average inventory processing period exhibited a notable degree of fluctuation over the observed timeframe. Initially, the period began at 21 days in September 2020, demonstrating a general decreasing trend through June 2021, before stabilizing and then experiencing a dramatic reduction starting in December 2023.

Initial Phase (Sep 30, 2020 – Jun 30, 2021)

From September 2020 to June 2021, the average inventory processing period decreased from 21 days to 18 days. This suggests an improvement in inventory management efficiency during this period, potentially due to increased sales velocity or optimized supply chain processes. The fluctuations within this phase were relatively minor.

Stabilization and Gradual Increase (Sep 30, 2021 – Jun 30, 2022)

Following June 2021, the period remained relatively stable, fluctuating between 19 and 24 days through June 2022. This indicates a plateau in inventory efficiency, with no significant improvements or deteriorations observed. The period reached a high of 24 days in September 2022.

Dramatic Reduction (Dec 31, 2023 – Dec 31, 2025)

A significant and sustained decrease in the average inventory processing period commenced in December 2023, falling from 9 days to a consistent 4 days through December 2025. This represents a substantial improvement in inventory turnover and efficiency. The period remained at 4 days for the final six quarters of the observation window. This suggests a fundamental shift in inventory management practices, potentially driven by enhanced forecasting, streamlined logistics, or a change in product mix.

Correlation with Inventory Turnover

The observed trends in the average inventory processing period are inversely correlated with the inventory turnover ratio. As the inventory turnover ratio increased, particularly from December 2023 onwards, the average inventory processing period decreased correspondingly. This confirms the relationship between these two metrics; a higher turnover rate directly translates to a shorter processing period.

Overall, the analysis reveals a transition from moderate inventory efficiency to a highly optimized state, particularly evident in the latter portion of the observed period. The substantial reduction in the average inventory processing period suggests successful implementation of strategies aimed at accelerating inventory flow and minimizing holding costs.

The average receivable collection period exhibits fluctuations over the observed timeframe, generally ranging between 56 and 91 days. An initial increase is noted from 57 days in September 2020 to 65 days in December 2020, followed by a slight decrease to 60 days in March 2021. A significant rise to 83 days is then observed in June 2021 before returning to 57 days in September 2021.

Overall Trend

The period demonstrates cyclical behavior without a clear, sustained upward or downward trend. There are periods of relative stability interspersed with notable increases, suggesting potential variations in credit policies, customer payment behavior, or the composition of receivables.

Peak Periods

The highest collection periods occur in June 2021 (83 days), June 2023 (84 days), June 2025 (91 days) and June 2024 (85 days). These peaks may warrant further investigation to determine the underlying causes, such as extended payment terms offered to specific customers or delays in collections due to economic factors.

Recent Performance

From September 2023 through December 2025, the average collection period fluctuates between 66 and 70 days, with a peak of 91 days in June 2025. This recent period shows a slight increase in the collection period compared to the earlier periods of the analysis, potentially indicating a developing trend that requires monitoring.

The observed variability in the average receivable collection period suggests the need for consistent monitoring and analysis. Understanding the factors driving these fluctuations is crucial for effective working capital management and maintaining healthy cash flow.

The operating cycle exhibited some fluctuation over the observed period, spanning from September 2020 to June 2025. Initial values remained relatively stable before increasing, then decreasing, and stabilizing again. A detailed examination of the components reveals distinct trends in inventory processing and receivable collection.

Average Inventory Processing Period

The average inventory processing period demonstrated a generally decreasing trend. Starting at 21 days in September 2020, it decreased to a low of 6 days in June 2024. A slight increase to 8 days was noted in September 2024, followed by a further decrease to 4 days and remaining stable through June 2025. This suggests increasing efficiency in managing inventory levels and converting them into sales.

Average Receivable Collection Period

The average receivable collection period showed more variability. It began at 57 days in September 2020, peaked at 91 days in June 2025, and experienced several intermediate increases and decreases. Notably, the period exceeded 80 days in multiple quarters, including June 2021, June 2022, and June 2024. The period generally fluctuated between 60 and 70 days, with a clear upward trend towards the end of the observed period. This indicates potential challenges in collecting receivables promptly.

Operating Cycle

The operating cycle, calculated as the sum of the inventory processing and receivable collection periods, initially remained around 78-79 days. It increased to a peak of 103 days in June 2022, mirroring the increases in both component periods. Subsequently, the operating cycle decreased to 71 days in September 2024, driven by the reduction in the inventory processing period. However, the increasing receivable collection period caused the operating cycle to rise again, reaching 95 days in June 2025. The overall trend suggests a lengthening of the time required to convert investments in inventory and receivables into cash, particularly in the latter part of the period.

The decreasing efficiency in receivable collection appears to be offsetting the gains made in inventory management, resulting in a stabilization and then slight increase in the overall operating cycle towards the end of the analyzed timeframe. Further investigation into the reasons for the extended receivable collection period may be warranted.

The average payables payment period exhibited fluctuations over the observed period, spanning from September 2020 to December 2025. Initially, the period remained relatively stable, followed by a period of increasing variability and a noticeable downward trend in the most recent quarters.

Initial Stability (Sep 30, 2020 – Dec 31, 2021)

From September 2020 through December 2021, the average payables payment period generally ranged between 94 and 106 days. There was a slight decrease from 98 days in September 2020 to 96 days in December 2020, followed by a return to 97 and 99 days in the subsequent quarters. The period remained near 97 days through December 2021, indicating consistent supplier payment practices during this timeframe.

Increased Variability (Mar 31, 2022 – Dec 31, 2023)

The period experienced increased variability beginning in March 2022. It decreased to 85 and 86 days in the first half of 2022, before increasing to 100 and 106 days in the latter half of 2022 and early 2023. This suggests potential shifts in supplier terms or the timing of invoice processing. The period then decreased again to 94 days by December 2023.

Downward Trend (Mar 31, 2024 – Dec 31, 2025)

A clear downward trend emerged from March 2024 through December 2025. The average payables payment period increased to 108 days in June 2024, but then consistently decreased, reaching 130 days in March 2025 and culminating in 142 days by December 2025. This indicates a lengthening of the time taken to settle obligations to suppliers. The most recent values represent the highest periods observed throughout the entire analyzed timeframe.

Overall, the observed changes suggest evolving relationships with suppliers and potentially a strategic shift in working capital management. The recent lengthening of the payment period warrants further investigation to understand the underlying causes and potential implications for supplier relationships and financial flexibility.

The short-term operating activity, as measured by the cash conversion cycle and its components, exhibits notable fluctuations over the observed period. Generally, the company demonstrates a negative cash conversion cycle, indicating efficient management of working capital. However, significant shifts are apparent, particularly in recent quarters.

Average Inventory Processing Period

The average time to process inventory generally remained stable between 14 and 23 days throughout most of the period. A distinct downward trend is observed from the fourth quarter of 2023, decreasing to a low of 4 days in the first four quarters of 2025. This suggests increasingly efficient inventory management practices.

Average Receivable Collection Period

The average receivable collection period shows more volatility. It fluctuated between approximately 56 and 91 days. A noticeable increase is observed in the second quarter of 2021, reaching 83 days, and again in the second quarter of 2022, peaking at 81 days. The period then generally remained in the 60-85 day range until a substantial increase to 91 days in the second quarter of 2025, followed by a slight decrease to 68 days in the fourth quarter of 2025. This suggests potential inconsistencies in collecting payments from customers.

Average Payables Payment Period

The average payables payment period consistently remained above 85 days throughout the analyzed timeframe. It generally ranged between 86 and 115 days. A clear upward trend is visible from the third quarter of 2024, increasing from 107 days to 142 days in the fourth quarter of 2025. This indicates a lengthening of the time taken to settle obligations to suppliers.

Cash Conversion Cycle

The cash conversion cycle remained negative for the majority of the period, ranging from -5 to -20 days. However, a significant shift towards longer cycles is evident in recent quarters. The cycle moved from -2 days in the second quarter of 2023 to -20 days in the second quarter of 2025, and further to -70 days in the fourth quarter of 2025. This deterioration is primarily driven by the increasing receivable collection period and the lengthening payables payment period, partially offset by the rapid decrease in the inventory processing period. The increasingly negative cycle in the final quarters suggests a potential strain on liquidity, despite efficient inventory management.

In summary, while the company historically maintained a strong cash conversion cycle, recent trends indicate a potential weakening in working capital management. The increasing time to collect receivables and the extended payment terms to suppliers are contributing to a more extended cycle, which warrants further investigation.