Teradyne Inc. (NASDAQ:TER)

The analysis of the financial ratios and related periods over the five-year span reveals several notable trends and shifts.

Inventory Management

The inventory turnover ratio increased from 4.86 in 2019 to a peak of 6.15 in 2021, indicating improved efficiency in managing inventory during that period. However, starting in 2022, a notable decline is observed with ratios falling to 3.96 and further to 3.68 in 2023. Correspondingly, the average inventory processing period decreased from 75 days in 2019 to 59 days in 2021, demonstrating faster inventory movement. This trend reversed significantly from 2022 onward, with the period increasing to 92 days and 99 days, suggesting slower inventory turnover and potential build-up of stock.

Receivables Performance

The receivables turnover ratio remained relatively stable, fluctuating mildly around 6.3 to 6.7 throughout the years without a strong directional trend. The average receivable collection period also exhibited stability, maintaining approximately 54 to 58 days, which suggests consistent effectiveness in collecting receivables.

Payables Management

Payables turnover showed a substantial rise from 7.54 in 2019 to around 9.9 in 2020 and 2021, indicating quicker payment of suppliers. However, in 2023, the turnover ratio declined significantly to 6.33. The average payables payment period decreased from 48 days in 2019 to 37 days during 2020 and 2021, before increasing again to 40 days in 2022 and sharply rising to 58 days in 2023. This suggests a strategic shift towards extending payment terms or delayed payments in the most recent year.

Working Capital Utilization

The working capital turnover ratio experienced fluctuations with a reduction from 2.05 in 2019 to 1.82 in 2020, a recovery to 2.09 in 2021 and 2022, followed by a decline to 1.78 in 2023. This indicates varying effectiveness in utilizing working capital to generate revenues, with a general weakening in the latest period.

Operating and Cash Conversion Cycles

The operating cycle contracted from 133 days in 2019 to 113 days in 2021, illustrating enhanced efficiency in converting inventory and receivables into cash. However, the trend reversed sharply with the cycle extending to 149 days in 2022 and further to 157 days in 2023. Similarly, the cash conversion cycle showed improvement from 85 days in 2019 to 76 days in 2021, before increasing substantially to 109 days and then improving slightly to 99 days in 2023. These changes reflect a prolonged period required to convert resources into cash, likely prompted by increasing inventory holding periods and longer payables payment durations.

Cost of Revenues

The cost of revenues, excluding acquired intangible assets amortization, exhibited an upward trend from 2019 through 2021, increasing from approximately 955 million USD to nearly 1.5 billion USD. However, in the subsequent years, this figure declined, dropping to around 1.29 billion USD in 2022 and further to about 1.14 billion USD in 2023. This pattern indicates an initial expansion in production or sales activities followed by a reduction in costs associated with revenues over the last two years.

Inventories

Net inventories increased steadily from approximately 197 million USD in 2019 to just over 243 million USD in 2021. A notable acceleration in inventory accumulation occurred thereafter, reaching a peak of about 325 million USD in 2022, before a slight decrease to nearly 310 million USD in 2023. This suggests that inventory levels were being built up substantially during this period, potentially reflecting either increased production or a slower turnover.

Inventory Turnover Ratio

The inventory turnover ratio showed improvement from 2019 to 2021, rising from 4.86 to 6.15. This indicates that inventories were being sold and replenished more frequently during this time, suggesting efficient inventory management or stronger sales. However, a sharp decline in turnover occurred in 2022, falling to 3.96, and continued to decrease to 3.68 in 2023. This decline correlates with the increased inventory levels and may indicate slower sales or overstocking issues in the latest periods.

Summary

Overall, the data demonstrates that after a period of growth and efficiency improvements extending through 2021, there has been a reversal in recent years characterized by decreasing cost of revenues and lower inventory turnover alongside rising inventory balances. This may imply challenges such as weakening demand, supply chain adjustments, or strategic shifts in inventory policy. Continued monitoring of these trends is advisable to better understand the underlying causes and to manage operational performance effectively.

Revenues

The revenue figures exhibit an upward trend from 2019 through 2021, increasing from approximately $2.29 billion to $3.70 billion. However, a decline is noted in the subsequent years, with revenues falling to about $3.16 billion in 2022 and further decreasing to roughly $2.68 billion in 2023. This pattern indicates a peak in 2021 followed by a two-year consecutive decline, suggesting potential market challenges or operational factors affecting sales.

Accounts Receivable, Less Allowance for Credit Losses

Accounts receivable balances generally increased from $362 million in 2019 to a peak of approximately $551 million in 2021. Following this peak, a decline is visible in 2022 and 2023, with receivables reducing to $491 million and $422 million respectively. The changes in receivables appear to be aligned with the revenue trends, reflecting changes in sales and possibly credit management policies.

Receivables Turnover Ratio

The receivables turnover ratio remained relatively stable over the five-year period, ranging from 6.27 to 6.72. This stability suggests consistent efficiency in collecting receivables despite fluctuations in revenue and accounts receivable balances. The slight peak in 2021 corresponds with the highest revenue and receivables figures, followed by a gradual return to levels similar to those at the start of the period in 2019 and 2020.

An analysis of the available financial data over the period from 2019 to 2023 reveals several notable trends regarding cost of revenues, accounts payable, and payables turnover ratio.

Cost of Revenues (exclusive of acquired intangible assets amortization)

This category exhibited a general increase from 2019 through 2021, rising from approximately $955 million to nearly $1.5 billion. However, in the subsequent years, there was a declining trend, dropping to around $1.29 billion in 2022 and further down to approximately $1.14 billion in 2023. This pattern indicates a peak in cost of revenues in 2021 followed by a reduction over the next two years.

Accounts Payable

The accounts payable figures showed a steady increase from about $127 million in 2019 to $153 million in 2021. There was a slight decrease to around $140 million in 2022, followed by a significant increase to approximately $180 million in 2023. Overall, accounts payable have trended upwards over the five-year period, with a notable surge in the most recent year.

Payables Turnover Ratio

The payables turnover ratio rose sharply from 7.54 in 2019 to a peak of 9.99 in 2020, maintaining a level close to this peak through 2021 at 9.77 and then declining gradually to 9.22 in 2022. In 2023, a pronounced drop to 6.33 occurred. This downward trend in the turnover ratio in the last two years suggests a slower rate of payment to suppliers relative to purchases.

In summary, the cost structure peaked in 2021 with a subsequent reduction. Despite fluctuations, accounts payable increased noticeably especially in 2023, which coupled with the declining payables turnover ratio indicates a lengthening of the payment cycle to suppliers. These trends may reflect changes in operational efficiency, vendor payment terms, or liquidity management strategies.

Working Capital

The working capital increased significantly from 1,119,855 thousand US dollars at the end of 2019 to a peak of 1,771,107 thousand US dollars by the end of 2021. Subsequently, it declined over the next two years, reaching 1,502,084 thousand US dollars by the end of 2023. Despite the decrease from the peak, the working capital at the end of 2023 remains higher than the 2019 level.

Revenues

Revenues exhibited an upward trend from 2,294,965 thousand US dollars in 2019 to a maximum of 3,702,881 thousand US dollars in 2021. Following this peak, revenues declined steadily in 2022 and 2023, reaching 2,676,298 thousand US dollars, which is below the 2020 level and close to the 2019 initial figure.

Working Capital Turnover

The working capital turnover ratio, representing the efficiency of using working capital to generate revenues, started at 2.05 in 2019 and decreased to 1.82 in 2020. It rebounded to 2.09 in 2021 and maintained the same level through 2022, indicating improved efficiency. However, in 2023, the ratio dropped to 1.78, the lowest in the observed period, suggesting a reduced ability to generate revenue per unit of working capital at that time.

Summary of Trends

Overall, the data reveals strong growth in both working capital and revenues through 2021, which may indicate expansion or increased operational scale. The subsequent decline in revenues and working capital after 2021 suggests a contraction or adjustment phase. The variation in working capital turnover reflects fluctuations in operational efficiency, peaking around 2021-2022 and declining in 2023. This pattern may point to challenges in maintaining revenue levels relative to working capital during the most recent year.

The inventory turnover ratio demonstrates a fluctuating trend over the given periods. It increased from 4.86 in 2019 to a peak of 6.15 in 2021, indicating an improvement in inventory management and faster sales relative to inventory during this timeframe. However, in 2022 and 2023, there was a notable decline to 3.96 and further to 3.68, respectively, suggesting a slowdown in inventory movement.

Correspondingly, the average inventory processing period, which reflects the average number of days inventory is held before sale, exhibits an inverse pattern. It decreased from 75 days in 2019 to a low of 59 days in 2021, consistent with the rise in inventory turnover and implying more efficient inventory turnover during these years. Following 2021, the processing period increased significantly to 92 days in 2022 and further to 99 days in 2023, indicating a lengthening of inventory holding time.

The combination of these indicators points to a period of enhanced inventory efficiency up to 2021, followed by a deterioration in subsequent years. The recent increases in the inventory processing period alongside decreases in turnover ratios may reflect challenges in selling inventory more rapidly or an accumulation of stock, which could impact working capital management and operational efficiency.

Receivables Turnover

The receivables turnover ratio exhibited slight fluctuations over the analyzed periods. Starting at 6.33 in 2019, it experienced a marginal decline to 6.27 in 2020, followed by an increase to 6.72 in 2021. Subsequently, the ratio decreased in 2022 to 6.42 and further declined to 6.34 in 2023. Despite these variations, the ratio remained within a relatively narrow range, suggesting stable efficiency in the collection of receivables over the five-year period.

Average Receivable Collection Period

The average collection period showed minimal change throughout the period under review. It remained steady at 58 days in both 2019 and 2020, then improved to 54 days in 2021, indicating quicker collections that year. However, this improvement was reversed in 2022 when the period extended to 57 days and returned to 58 days in 2023. Such minor fluctuations suggest consistency in the company’s credit and collection policies, with occasional short-term variations.

Overall Analysis

The interplay between the receivables turnover ratio and average collection period reveals a stable receivables management pattern. The moderate increase and subsequent decline in turnover correspond inversely with the variation in collection period, illustrating a consistent pattern of credit extension and cash collection. There is no indication of significant deterioration or improvement in receivables management over the evaluated years, reflecting controlled credit risk management and operational stability.

Average Inventory Processing Period

The average inventory processing period demonstrated a fluctuating trend over the analyzed period. It started at 75 days in 2019 and decreased significantly to 61 days in 2020 and further to 59 days in 2021, indicating an improvement in inventory turnover efficiency. However, there was a notable reversal in this trend, with the period rising sharply to 92 days in 2022 and further to 99 days in 2023, suggesting potential challenges in inventory management or slower inventory movement during these two years.

Average Receivable Collection Period

The average receivable collection period remained relatively stable across the five years. It was 58 days in 2019, unchanged in 2020, then slightly decreased to 54 days in 2021, which may imply improved collection efficiency. In 2022, it increased marginally back to 57 days and remained nearly constant at 58 days in 2023, indicating consistent credit and collection policies without significant variability.

Operating Cycle

The operating cycle followed a pattern mirroring the changes in inventory processing period, with some influence from receivable collections. It decreased from 133 days in 2019 to 119 days in 2020 and further to 113 days in 2021, reflecting improved operational efficiency. Subsequently, it increased markedly to 149 days in 2022 and reached 157 days in 2023, signaling a lengthening of the operating cycle largely driven by the extended inventory processing period during these years. This elongation might imply slower asset turnover and potential inefficiencies in working capital management.

Payables Turnover

The payables turnover ratio exhibited an overall decline from 2019 to 2023. Initially, it increased significantly from 7.54 in 2019 to peak at 9.99 in 2020, followed by a slight decrease to 9.77 in 2021 and 9.22 in 2022. In 2023, the ratio dropped notably to 6.33, indicating a reduction in the frequency with which payables were settled over the year. This downward trend suggests a deceleration in the company's payment rate to its suppliers in the latest period.

Average Payables Payment Period

The average payables payment period, measured in days, moved inversely to the payables turnover. Beginning at 48 days in 2019, it decreased sharply to 37 days in 2020 and remained stable at 37 days in 2021. There was a moderate increase to 40 days in 2022, followed by a significant jump to 58 days in 2023. The extension of the payment period in the most recent year aligns with the observed decline in payables turnover, suggesting the company is taking longer to settle its obligations.

Overall Pattern and Insights

The data reveals a shift from a relatively quicker payment profile in earlier years to a more extended payment schedule recently. The initial improvement in efficiency through 2020 was reversed in later years, culminating in notable lengthening of the payment cycle by 2023. This could reflect changing cash management strategies or alterations in supplier terms. The increase in payment days in 2023 may impact supplier relationships and indicates a potential area for attention in working capital management.

Average inventory processing period

The average inventory processing period showed a declining trend from 75 days in 2019 to 59 days in 2021, indicating improved inventory turnover efficiency. However, there was a significant increase beginning in 2022, reaching 92 days, and further rising to 99 days in 2023. This reversal suggests potential challenges in inventory management or slower sales impacting inventory holding times.

Average receivable collection period

The average receivable collection period remained relatively stable throughout the period, fluctuating slightly between 54 and 58 days. This stability indicates consistent effectiveness in the collection of receivables without significant deterioration or improvement.

Average payables payment period

The average payables payment period experienced a noticeable decrease from 48 days in 2019 to 37 days in both 2020 and 2021, implying faster payments to suppliers during this timeframe. However, the payment period lengthened to 40 days in 2022 and then rose substantially to 58 days in 2023, suggesting a possible strategic extension of payment terms or cash flow management adjustment.

Cash conversion cycle

The cash conversion cycle decreased from 85 days in 2019 to 76 days in 2021, reflecting an overall improvement in the efficiency of cash flow management. Nevertheless, it increased markedly to 109 days in 2022 and then improved slightly to 99 days in 2023. The spike indicates a temporary setback in turning resources into cash, likely linked to the increased inventory processing period and extended payable terms observed during these years.