Super Micro Computer Inc. (NASDAQ:SMCI)

Inventory Turnover

The inventory turnover ratio demonstrated a decline from 4.48 in 2019 to a low of 2.84 in 2022, indicating slower inventory movement over this period. Although there was a temporary increase to 4.04 in 2023, the ratio dropped again to 2.98 in 2024, reflecting ongoing challenges in inventory efficiency.

Receivables Turnover

A consistent downward trend in receivables turnover was noted, decreasing steadily from 8.89 in 2019 to 5.48 in 2024. This suggests that the company is collecting receivables more slowly over time, potentially impacting cash flow.

Payables Turnover

The payables turnover ratio decreased from 8.34 in 2019 to 4.94 in 2021, indicating slower payment to suppliers during these years. However, a recovery trend emerged thereafter, with the ratio increasing to 8.78 by 2024, reflecting an improvement in payment efficiency.

Working Capital Turnover

This ratio declined gradually from 4.29 in 2019 to 2.28 in 2024, pointing to a reduced efficiency in generating revenue from working capital.

Average Inventory Processing Period

The average inventory processing period lengthened from 81 days in 2019 to a peak of 128 days in 2022, suggesting slower inventory turnover. A reduction occurred in 2023 to 90 days, but this was followed by an increase back to 122 days in 2024, indicating fluctuating inventory management effectiveness.

Average Receivable Collection Period

The period increased continuously from 41 days in 2019 to 67 days in 2024, highlighting increasing delays in receivables collection.

Operating Cycle

There was a steady increase in the operating cycle from 122 days in 2019 to 189 days in 2024, implying a lengthening of the overall cash-to-cash cycle which could strain operational liquidity.

Average Payables Payment Period

This metric rose from 44 days in 2019 to 74 days in 2021, indicating slower payments to suppliers, but subsequently decreased to 42 days by 2024, reflecting improved payment discipline in recent years.

Cash Conversion Cycle

The cash conversion cycle lengthened from 78 days in 2019 to a high of 147 days in 2024, with fluctuations observed. This increase suggests greater cash tied up in operations and potentially reduced liquidity.

Cost of Sales

The cost of sales exhibited fluctuations over the observed periods, beginning at approximately $3.0 billion in 2019 and decreasing to around $2.8 billion in 2020. This was followed by a moderate increase to about $3.0 billion in 2021. From 2021 onward, there was a marked upward trajectory, with costs rising sharply to nearly $4.4 billion in 2022, then to approximately $5.8 billion in 2023, and ultimately reaching over $12.9 billion in 2024. The most significant increase was observed between 2023 and 2024, indicating a substantial escalation in production or procurement expenses in the latest fiscal year.

Inventories

Inventories consistently increased from 2019 through 2022, starting at roughly $670 million and peaking at about $1.55 billion. In 2023, inventories slightly decreased to approximately $1.45 billion before surging to over $4.3 billion in 2024. This drastic rise in inventory levels in the most recent period suggests either a buildup in stock possibly anticipating higher demand or potential issues in inventory management or sales.

Inventory Turnover Ratio

The inventory turnover ratio experienced a decline from 4.48 in 2019 to a low of 2.84 in 2022, indicating a slowing rate of inventory conversion into sales over these years. In 2023, there was a partial recovery to 4.04, suggesting improved efficiency or sales performance relative to inventory held. However, in 2024, the ratio fell again to 2.98, which, despite being higher than the 2022 low, still reflects reduced turnover compared to earlier years. This pattern corresponds with the substantial inventory increase in 2024, pointing to a potential accumulation of stock without proportional sales growth.

The analysis of the annual financial data reveals significant trends in sales performance, accounts receivable, and receivables management efficiency over the six-year period ending June 30, 2024.

Net Sales

The net sales figures indicate a strong upward trajectory, with values steadily increasing each year except for a minor decline from 2019 to 2020. Starting at approximately $3.5 billion in 2019, net sales decreased slightly in 2020 but then recovered and expanded significantly in subsequent years. Notably, sales nearly doubled from about $7.1 billion in 2023 to nearly $15 billion in 2024, demonstrating robust growth and possibly reflecting expanding market demand or successful business strategies during this period.

Accounts Receivable, Net of Allowance for Credit Losses

The accounts receivable show a consistent and substantial increase throughout the years reviewed. Beginning at approximately $394 million in 2019, the figure grows almost sevenfold to roughly $2.7 billion by 2024. This rise is indicative of increased credit sales or extended credit terms, potentially correlating with the overall sales growth. However, this escalation could also signify longer collection periods or changes in credit policies, warranting scrutiny regarding credit risk management.

Receivables Turnover Ratio

The receivables turnover ratio exhibits a downward trend, falling from 8.89 in 2019 to 5.48 in 2024. This declining ratio suggests that the company is collecting its receivables less frequently over the course of the year, indicating a lengthening of the average collection period. While this may be partially attributable to expanded sales volume and larger receivable balances, the decrease in efficiency could raise concerns about potential liquidity impacts and the effectiveness of receivables management practices.

Overall, the data reflects a dynamic growth phase in net sales accompanied by rising accounts receivable balances and a decline in receivables turnover efficiency. These patterns highlight the importance of monitoring credit policies and collection processes to ensure that increased sales translate into liquid assets without undue delays or risk exposure.

Cost of Sales

The cost of sales exhibits an overall upward trajectory over the analyzed period. From June 2019 to June 2024, the cost increased significantly from approximately 3.0 billion US dollars to over 12.9 billion US dollars. Notably, there was a considerable rise between June 2022 and June 2023, followed by an even sharper increase into June 2024, indicating substantial growth in expenses associated with producing goods or services.

Accounts Payable

Accounts payable showed a steady increase throughout the period, rising from around 360 million US dollars in June 2019 to about 1.47 billion US dollars in June 2024. This growth suggests an expansion in outstanding payments to suppliers or creditors, consistent with the rising cost of sales.

Payables Turnover Ratio

The payables turnover ratio demonstrated variability, decreasing from 8.34 in June 2019 to a low of 4.94 in June 2021, before rebounding to 8.78 by June 2024. Initial declines suggest a slowing rate of payment to suppliers, possibly due to extended payment terms or liquidity management strategies. The subsequent increase indicates an improvement in the speed of settling payables toward the end of the period.

Working Capital

The working capital shows a consistent increasing trend from June 30, 2019, through June 30, 2024. It rose from $815,802 thousand in 2019 to $6,586,239 thousand in 2024, indicating a significant strengthening of the company's short-term financial position. The most notable increase occurred between 2023 and 2024, where working capital more than tripled, suggesting either increased current assets or decreased current liabilities during that period.

Net Sales

Net sales displayed fluctuations over the years but overall reflect a strong upward trend. After a slight dip from $3,500,360 thousand in 2019 down to $3,339,281 thousand in 2020, sales gradually increased to $3,557,422 thousand in 2021. From 2021 onward, net sales rose sharply, reaching $14,989,251 thousand by 2024. The sharp acceleration from 2022 to 2024 points to significant growth in revenue generation, with sales more than quadrupling within three years.

Working Capital Turnover Ratio

The working capital turnover ratio, which measures the efficiency of the company in generating sales from its working capital, demonstrated some variability. The ratio decreased from 4.29 in 2019 to 3.77 in 2020, then rose slightly to 3.96 in 2021. It remained relatively stable around 3.9 in 2022 and 2023. However, in 2024, this ratio declined sharply to 2.28, reflecting that despite the large increase in net sales, the working capital increased proportionally even more. This indicates a reduction in the efficiency with which the company's working capital is being used to generate sales during that year.

Inventory Turnover Ratio

The inventory turnover ratio experienced a decline from 4.48 in 2019 to 2.84 in 2022, indicating a decreasing efficiency in managing and selling inventory over this period. There was a notable improvement in 2023, with the ratio increasing to 4.04, suggesting a temporary enhancement in inventory management or sales. However, this improvement was not sustained, as the ratio fell again to 2.98 in 2024, approaching the lower levels observed in the early years of the analysis.

Average Inventory Processing Period

The average inventory processing period, measured in days, showed an opposite pattern to the inventory turnover ratio. It increased steadily from 81 days in 2019 to a peak of 128 days in 2022. This trend implies that inventory was held longer before sale, consistent with the declining turnover ratio during the same timeframe. In 2023, the period shortened significantly to 90 days, corresponding with the temporary increase in turnover ratio. However, in 2024, the processing period lengthened again to 122 days, again aligning with the observed decrease in the turnover ratio.

Overall Trends and Insights

These metrics collectively indicate challenges in inventory management and turnover, particularly from 2020 through 2022, with a meaningful but brief improvement in 2023. The return to a longer processing period and lower turnover ratio in 2024 suggests that the improvements in inventory efficiency were not maintained. This pattern may reflect fluctuations in operational efficiency, demand variability, or supply chain constraints impacting inventory management.

The data reflects a clear downward trend in the efficiency of the company's receivables management over the six-year period.

Receivables Turnover Ratio

This ratio has steadily decreased from 8.89 in 2019 to 5.48 in 2024, indicating that the company is collecting its receivables less frequently each year. A declining turnover ratio suggests that outstanding credit sales are taking longer to be collected.

Average Receivable Collection Period

The average number of days required to collect receivables has increased consistently from 41 days in 2019 to 67 days in 2024. This increase corroborates the trend observed in the turnover ratio, signifying a lengthening collection cycle.

Overall, the prolonging collection period coupled with the declining turnover ratio suggests a weakening in the company's credit management or potential challenges in cash collection. This trend may impact the company's liquidity and working capital management if not addressed.

Average Inventory Processing Period

The average inventory processing period exhibited notable fluctuations over the reported years. Starting at 81 days in 2019, it increased significantly to 110 days in 2020 and continued rising to 126 days in 2021 and 128 days in 2022. A marked improvement occurred in 2023, where the period dropped to 90 days, followed by another increase to 122 days in 2024. This pattern suggests variability in inventory management efficiency, with a temporary gain in 2023 that was not sustained.

Average Receivable Collection Period

There is a consistent upward trend in the average receivable collection period, indicating a lengthening time to collect customer payments. Beginning at 41 days in 2019, the period increased gradually to 44 days in 2020, 48 days in 2021, and a more pronounced rise to 59 days in both 2022 and 2023. By 2024, the period further extended to 67 days. This growing collection period could reflect changes in credit policies, customer payment behavior, or collection efficiency.

Operating Cycle

The operating cycle, representing the total time between inventory acquisition and cash collection, mirrors the variability observed in the inventory and receivables periods. Commencing at 122 days in 2019, it grew substantially to 154 days in 2020, reaching 174 days in 2021 and 187 days in 2022. A decline to 149 days happened in 2023, coinciding with the inventory period reduction, but it rebounded to 189 days in 2024. This indicates that despite efforts to shorten the cycle in 2023, the overall operating efficiency faced setback in the most recent year.

Summary

Overall, the data reveals an increasing trend in both the receivable collection and operating cycles, suggesting longer durations to convert inventory and receivables into cash. Although there was a temporary reduction in the inventory processing and operating cycles in 2023, these improvements were not maintained into 2024. These trends may warrant further investigation into working capital management practices to enhance liquidity and operational efficiency.

The financial data reveals noteworthy trends in the company's payables turnover and the average payables payment period over a six-year span.

Payables Turnover Ratio

The payables turnover ratio exhibited a declining trend from 8.34 in 2019 to a low of 4.94 in 2021, indicating a slower rate of payments to suppliers during this timeframe. Subsequently, the ratio increased to 6.71 in 2022, followed by a steady rise to reach 8.78 in 2024. This pattern suggests an initial lengthening of credit usage from suppliers, followed by an improvement in payment pace.

Average Payables Payment Period

Correspondingly, the average payables payment period extended from 44 days in 2019 to a peak of 74 days in 2021, signaling that the company took longer to settle its obligations in that year. Afterwards, this period shortened consistently, dropping to 42 days by 2024. This mirrors the recovery observed in the payables turnover ratio, indicating a return to faster payments.

In summary, the company initially experienced a period of extended payment terms to suppliers around 2020-2021, which was reversed in later years up to 2024. The improvements in the payables turnover ratio and reductions in the payment period from 2022 onwards reflect enhanced operational efficiency or changes in payment policies aimed at settling payables more promptly.

Average Inventory Processing Period

The average inventory processing period increased notably from 81 days in 2019 to a peak of 128 days in 2022, indicating a lengthening in the time inventory remains before being sold. This was followed by a significant reduction to 90 days in 2023, suggesting improved inventory turnover. However, in 2024, there was a rebound to 122 days, reflecting renewed slower inventory movement.

Average Receivable Collection Period

The average receivable collection period displayed a consistent upward trend across the years. It rose from 41 days in 2019 to 67 days by 2024, indicating that the company has been taking progressively longer to collect payments from customers. The increase is steady, with the largest jump occurring after 2021.

Average Payables Payment Period

The average payables payment period fluctuated throughout the period. It escalated from 44 days in 2019 to 74 days in 2021, suggesting extended time to settle supplier obligations. However, the following years saw a decline to 42 days by 2024, which may imply a strategic shift toward quicker payments to suppliers or changing credit terms.

Cash Conversion Cycle

The cash conversion cycle (CCC) increased overall from 78 days in 2019 to 147 days in 2024, highlighting a growing number of days between outlaying cash for inventory and receiving cash from receivables. Notably, the CCC spiked sharply to 133 days in 2022 after rising steadily through 2020 and 2021, followed by a slight reduction to 100 days in 2023 before climbing again in 2024.

Overall, the data indicates trends of extended receivable collection and inventory holding periods, with a corresponding increase in the cash conversion cycle which may impact the company's liquidity. While the company shortened its payables payment period in recent years, the lengthening of other operational cycles suggests a need for enhanced working capital management strategies.