Synopsys Inc. (NASDAQ:SNPS)

An examination of short-term operating activity ratios reveals fluctuating performance over the six-year period. Several ratios demonstrate considerable volatility, while others exhibit more defined trends. Overall, the period shows a shift in the efficiency of managing inventory, receivables, and payables, culminating in a more complex operating cycle.

Inventory Management

Inventory turnover initially decreased from 4.13 to 3.76, then increased to 5.02 before declining again to 3.44. The most recent value, 4.45, suggests a partial recovery. Correspondingly, the average inventory processing period lengthened from 88 days to 97 days, shortened to 73 days, and then extended to 106 days before decreasing to 82 days. These movements indicate inconsistency in inventory management efficiency, potentially influenced by supply chain dynamics or changes in sales patterns.

Receivables Management

Receivables turnover more than doubled from 4.72 to 7.40, then decreased to 6.38, 6.17, and 6.56 before falling to 4.69. The average receivable collection period decreased from 77 days to 49 days, increased to 57 days, 59 days, and 56 days, and then rose to 78 days. This suggests an initial improvement in collecting receivables, followed by a lengthening collection period, potentially indicating a shift in customer credit terms or increased collection difficulties.

Payables Management

Payables turnover decreased from 26.49 to 28.30, then experienced a substantial decline to 7.84, 6.01, and 9.85. The average payables payment period shortened from 14 days to 12 days and 13 days, then dramatically increased to 47 days and 61 days before decreasing to 37 days. This indicates a significant change in payment practices, with a prolonged period of delayed payments to suppliers, followed by a recent partial correction. The substantial fluctuations could be linked to negotiations with suppliers or changes in the company’s cash flow management.

Overall Operating Cycle & Cash Conversion

The working capital turnover ratio initially increased from 9.00 to 21.34, then decreased sharply to 1.60 and rose slightly to 3.08. This suggests a period of efficient working capital utilization followed by a significant decline, potentially due to increased investment in working capital or decreased sales. The operating cycle decreased from 165 days to 130 days, then increased to 162 days and 160 days. The cash conversion cycle followed a similar pattern, decreasing from 151 days to 117 days, then increasing to 123 days. These cycles reflect the combined effects of changes in inventory, receivables, and payables management, indicating a lengthening of the time required to convert investments in resources into cash in the later years of the period.

In summary, the observed trends suggest a period of initial efficiency gains in managing short-term assets and liabilities, followed by increasing volatility and, in some cases, a deterioration in key performance indicators. The recent periods show some signs of stabilization, but continued monitoring is warranted to understand the underlying drivers of these fluctuations and their impact on overall financial health.

The inventory turnover ratio exhibits fluctuations over the observed period. Initially, the ratio decreased from 4.13 in 2020 to 3.76 in 2021, indicating a slowing in the rate at which inventory was sold and replenished. A subsequent increase to 5.02 in 2022 suggests improved inventory management or increased demand. However, this improvement was not sustained, as the ratio declined to 3.75 in 2023, mirroring the 2021 level. Further decreases were observed in 2024, with the ratio falling to 3.44. A recovery is indicated in 2025, with the ratio rising to 4.45.

Cost of Revenue

Cost of revenue consistently increased throughout the period, rising from US$794,690 thousand in 2020 to US$1,623,549 thousand in 2025. This growth suggests expanding sales activity or increasing input costs, or a combination of both.

Inventories

Inventory levels generally increased over the period, although not consistently. From 2020 to 2021, inventories rose from US$192,333 thousand to US$229,023 thousand. A decrease was observed in 2022, falling to US$211,927 thousand. Subsequently, inventories increased significantly in 2023 to US$325,590 thousand, and continued to rise, albeit at a slower pace, reaching US$365,190 thousand in 2025. The increases in inventory, particularly in 2023 and 2024, may contribute to the observed fluctuations in the inventory turnover ratio.

Inventory Turnover – Overall Trend

The inventory turnover ratio demonstrates a lack of a clear, sustained trend. While there is an initial decline followed by a peak, the ratio ultimately returns to levels similar to those observed in the earlier years of the period. The ratio’s sensitivity to changes in both cost of revenue and inventory levels is apparent. The increase in inventory in 2023 and 2024, coupled with a relatively smaller increase in cost of revenue, likely contributed to the lower turnover rates observed in those years. The increase in the ratio in 2025 suggests a more effective balance between inventory levels and cost of revenue.

The receivables turnover ratio exhibits fluctuations over the observed period. Initially, the ratio increased significantly before stabilizing and then declining. A detailed examination of the trend reveals insights into the company’s efficiency in collecting its receivables.

Overall Trend

The receivables turnover ratio demonstrates an initial improvement followed by a period of relative stability and a subsequent decline. The ratio increased from 4.72 in 2020 to a peak of 7.40 in 2021, indicating improved efficiency in converting receivables into cash. From 2021 to 2023, the ratio experienced a moderate decrease, stabilizing around 6.2. However, a more pronounced decrease to 4.69 is observed in the most recent year, 2025.

2020-2021 Increase

The substantial increase in the receivables turnover ratio between 2020 and 2021 suggests a more effective credit and collection process during that period. This improvement could be attributed to changes in credit policies, more aggressive collection efforts, or a shift in the customer base towards faster-paying clients. Revenue also increased significantly during this period, but not at a rate that fully explains the turnover increase, suggesting operational improvements played a role.

2021-2023 Stability

From 2021 to 2023, the receivables turnover ratio remained relatively stable, fluctuating between 6.17 and 6.56. This suggests that the company maintained a consistent level of efficiency in managing its receivables during this timeframe. Revenue continued to increase, and accounts receivable also increased, but the turnover ratio remained within a narrow range.

2023-2025 Decline

The decline in the receivables turnover ratio from 6.56 in 2023 to 4.69 in 2025 warrants further investigation. This decrease, coupled with a significant increase in accounts receivable, indicates a potential slowdown in the collection process. This could be due to extended payment terms offered to customers, a change in the customer mix towards slower-paying clients, or potential issues with the collection process itself. The substantial increase in accounts receivable in 2025 is a key factor contributing to this decline.

In conclusion, while the company initially demonstrated improvements in receivables management, the recent decline in the turnover ratio, alongside rising accounts receivable, suggests a potential area of concern that requires attention.

The accounts payable turnover ratio exhibits considerable fluctuation over the observed period. Initially, the ratio demonstrates an increasing trend, followed by a significant decline and subsequent partial recovery.

Overall Trend

From 2020 to 2021, the payables turnover ratio increased from 26.49 to 31.44, indicating a more efficient use of credit terms with suppliers. However, this positive trend reversed sharply in subsequent years. A substantial decrease is observed from 2021 to 2023, with the ratio falling to 7.84. The ratio then shows a modest increase to 6.01 in 2024, before rising again to 9.85 in 2025.

Cost of Revenue & Accounts Payable Relationship

The cost of revenue consistently increased throughout the period, rising from US$794,690 thousand in 2020 to US$1,623,549 thousand in 2025. Accounts payable also generally increased, although not consistently. The significant rise in accounts payable from 2022 to 2023 (from US$37,580 thousand to US$155,891 thousand) coincides with the most dramatic decline in the payables turnover ratio. The subsequent decrease in accounts payable in 2025 (to US$164,766 thousand) is associated with a partial recovery in the ratio.

Ratio Interpretation

The declining payables turnover ratio from 2021 to 2024 suggests a lengthening of the time taken to pay suppliers. This could be due to several factors, including a deliberate strategy to conserve cash, difficulties in negotiating favorable payment terms, or potential issues with supplier relationships. The increase in the ratio in 2025 indicates a return towards a faster payment cycle, but remains below the levels observed in 2020 and 2021.

The volatility in the payables turnover ratio warrants further investigation to understand the underlying drivers and potential implications for the company’s financial health and supplier relationships.

The working capital turnover ratio exhibited considerable fluctuation over the observed period. Initial values indicate an increasing trend, followed by a significant decline and subsequent partial recovery.

Overall Trend

From 2020 to 2022, the working capital turnover ratio demonstrated a strong upward trajectory, increasing from 9.00 to 21.34. This suggests improving efficiency in utilizing working capital to generate revenue. However, this positive trend reversed sharply in 2023, with the ratio decreasing to 13.12. The decline continued into 2024, falling dramatically to 1.60, before partially recovering to 3.08 in 2025.

2020-2022 Analysis

The period between 2020 and 2022 saw consistent growth in both revenue and working capital turnover. Revenue increased from US$3,685,281 thousand to US$5,081,542 thousand, while the turnover ratio more than doubled. This indicates that the company was becoming increasingly effective at converting its working capital into sales during this timeframe.

2023-2025 Analysis

The years 2023 through 2025 present a contrasting picture. While revenue continued to increase, reaching US$7,054,178 thousand in 2025, the working capital turnover ratio experienced a substantial decrease in 2024, followed by a modest increase in 2025. The significant drop in 2024 suggests a potential inefficiency in working capital management, possibly due to a substantial increase in working capital relative to revenue. The partial recovery in 2025 indicates some improvement, but the ratio remains considerably lower than the levels observed between 2020 and 2022.

Working Capital and Revenue Relationship

A notable increase in working capital is observed in 2024, rising to US$3,819,546 thousand from US$445,173 thousand in the prior year. This substantial increase, coupled with a relatively smaller increase in revenue, likely contributed to the dramatic decline in the working capital turnover ratio during that year. The decrease in working capital in 2025, to US$2,289,608 thousand, partially alleviated this effect, leading to a higher turnover ratio.

In summary, the working capital turnover ratio demonstrates a complex pattern of improvement, followed by a significant disruption and partial correction. Further investigation is warranted to understand the underlying causes of the fluctuations, particularly the substantial changes observed in 2024 and 2025.

The average inventory processing period exhibited fluctuations over the observed six-year period. While inventory turnover showed some variability, the processing period demonstrated a more distinct pattern of increase followed by decrease.

Average Inventory Processing Period

The average inventory processing period increased from 88 days in 2020 to 97 days in 2021, indicating a lengthening in the time required to convert inventory into sales. This increase was then followed by a decrease to 73 days in 2022, suggesting improved inventory management efficiency. However, the period increased again in 2023, returning to 97 days, and further extended to 106 days in 2024. A subsequent decrease to 82 days is observed in 2025.

The fluctuations in the average inventory processing period do not consistently correlate with changes in inventory turnover. For example, inventory turnover decreased from 2020 to 2021, coinciding with an increase in the processing period. However, inventory turnover increased from 2021 to 2022, while the processing period decreased. The divergence in trends between 2023 and 2024 suggests factors beyond simple sales velocity are influencing how long inventory is held.

The peak processing period of 106 days in 2024 warrants further investigation. Potential contributing factors could include changes in supply chain dynamics, shifts in product mix towards slower-moving items, or adjustments in inventory management strategies. The decrease to 82 days in 2025 suggests a potential correction or response to the conditions present in 2024.

The average receivable collection period exhibited fluctuating behavior over the observed six-year period. Initially, a significant decrease was noted, followed by a period of relative stability, and concluding with a notable increase.

Average Receivable Collection Period

In 2020, the average receivable collection period stood at 77 days. A substantial reduction occurred in 2021, decreasing to 49 days. This indicates a marked improvement in the efficiency of collecting receivables during that year.

From 2021 to 2023, the period experienced a modest increase, moving from 49 days to 59 days. This suggests a slight lengthening in the time taken to collect receivables, though remaining relatively contained.

The period stabilized somewhat in 2024, registering at 56 days. However, a distinct upward trend emerged in the final two years of the observation period. By 2025, the average collection period had risen to 78 days, returning to a level comparable to that observed in 2020.

This final increase warrants further investigation to determine the underlying causes, which could include changes in credit policies, customer payment behavior, or the composition of outstanding receivables.

The observed fluctuations suggest potential shifts in the company’s credit and collection practices or changes in its customer base. The return to a longer collection period in the most recent years may indicate emerging challenges in managing accounts receivable.

The operating cycle exhibited fluctuations over the observed period. Initial values decreased before increasing again, suggesting shifts in the efficiency of converting inventory into cash. A detailed examination of the components reveals specific trends in inventory management and receivable collection.

Average Inventory Processing Period

The average inventory processing period increased from 88 days in 2020 to 97 days in 2021. A subsequent decrease to 73 days was noted in 2022, followed by an increase to 97 days in 2023 and further to 106 days in 2024. The most recent value for 2025 shows a decrease to 82 days. This indicates variability in the time required to sell inventory, potentially influenced by product mix, demand fluctuations, or supply chain dynamics.

Average Receivable Collection Period

The average receivable collection period demonstrated a significant decrease from 77 days in 2020 to 49 days in 2021. It then rose to 57 days in 2022 and 59 days in 2023, remaining relatively stable at 56 days in 2024 before increasing to 78 days in 2025. This suggests improvements in collection efficiency initially, followed by a lengthening of the collection period in more recent years, potentially due to changes in credit terms or customer payment behavior.

Operating Cycle

The operating cycle decreased from 165 days in 2020 to 146 days in 2021, and further to 130 days in 2022, representing the most efficient cycle within the observed timeframe. An increase to 156 days occurred in 2023, followed by 162 days in 2024 and a slight decrease to 160 days in 2025. The overall trend suggests a lengthening of the operating cycle in the latter part of the period, despite the initial improvements. This lengthening is likely a combined effect of the trends observed in both inventory processing and receivable collection.

The fluctuations in the operating cycle warrant further investigation to determine the underlying causes and potential impacts on liquidity and cash flow. The recent increases in both inventory processing and receivable collection periods suggest a potential need to reassess inventory management strategies and credit policies.

The average payables payment period exhibited considerable fluctuation over the observed period. Initially, the period remained relatively stable, followed by a significant increase, and then a partial recovery.

Payables Payment Period Trend

From 2020 to 2022, the average payables payment period remained consistent, fluctuating between 12 and 14 days. This suggests a stable relationship with suppliers during this timeframe.

A substantial increase in the average payables payment period was observed in 2023, rising to 47 days. This indicates a lengthening of the time taken to settle obligations to suppliers.

The period continued to increase in 2024, reaching a peak of 61 days, representing the longest payment period within the analyzed timeframe. This could suggest potential challenges in maintaining timely payments to suppliers or a deliberate strategy to extend payment terms.

In 2025, the average payables payment period decreased to 37 days, signaling a partial return towards more typical levels. However, it remained significantly higher than the levels observed between 2020 and 2022.

The payables turnover ratio, inversely related to the payment period, mirrors this trend. A decreasing payables turnover ratio corresponds to an increasing payment period, and vice versa. The substantial decline in payables turnover in 2023 and 2024 aligns with the extended payment periods observed during those years.

Payables Turnover Relationship

Payables turnover decreased from 31.44 in 2021 to 7.84 in 2023, and further to 6.01 in 2024, confirming the slower rate at which payables were being settled.

The partial recovery in payables turnover to 9.85 in 2025 corresponds with the decrease in the average payables payment period to 37 days.

The observed changes in the average payables payment period warrant further investigation to understand the underlying causes and potential implications for supplier relationships and financial flexibility.

The short-term operating activity of the company, as measured by key ratios, exhibits fluctuating trends over the observed period. The cash conversion cycle, a critical indicator of operational efficiency, generally decreased from 2020 to 2023 before increasing in the later years. A closer examination of the component ratios reveals the underlying drivers of this pattern.

Average Inventory Processing Period

The average time to process inventory initially increased from 88 days in 2020 to 97 days in 2021. A subsequent decrease to 73 days was noted in 2022, followed by another increase to 106 days in 2024. The most recent period, 2025, shows a reduction to 82 days. This suggests potential variability in inventory management practices or external factors influencing supply chain dynamics.

Average Receivable Collection Period

A significant decrease in the average receivable collection period occurred between 2020 and 2021, falling from 77 days to 49 days. This trend continued, albeit at a slower pace, reaching 57 days in 2022 and 59 days in 2023. A slight increase to 78 days is observed in 2025, potentially indicating a loosening of credit terms or a shift in customer payment behavior.

Average Payables Payment Period

The average payables payment period remained relatively stable between 2020 and 2023, fluctuating between 12 and 14 days. A substantial increase to 47 days occurred in 2024, followed by a decrease to 61 days in 2024 and then a further decrease to 37 days in 2025. This suggests a change in the company’s negotiation strategy with suppliers or a deliberate adjustment to cash flow management.

Cash Conversion Cycle

The cash conversion cycle decreased from 151 days in 2020 to 109 days in 2023, indicating improved efficiency in converting investments in inventory and receivables into cash. However, the cycle lengthened to 101 days in 2024 and further to 123 days in 2025. This reversal in trend is likely attributable to the combined effects of increasing inventory processing times and a lengthening of the receivable collection period, partially offset by changes in the payables payment period.

Overall, the company demonstrated improvements in its cash conversion cycle through 2023. However, recent periods suggest a potential weakening of operational efficiency, requiring further investigation into the factors driving the observed changes in inventory, receivables, and payables management.