Illinois Tool Works Inc. (NYSE:ITW)

Inventory Turnover

The inventory turnover ratio started at 6.81 in March 2018 and showed a gradual decline over the subsequent quarters, reaching 5.01 by December 2021. This suggests a lengthening in the time inventory remains on hand before being sold, indicating a potential slowdown in inventory movement or increased stock levels.

Receivables Turnover

Receivables turnover demonstrated some variation, beginning at 5.45 in March 2018 and generally decreasing to around 5.09 by December 2021. There was a decline during 2020 with a sharper dip to 5.04 in September 2020, reflecting an increase in the average collection period for customer receivables.

Payables Turnover

The payables turnover ratio showed relatively higher values initially, starting at 14.08 in March 2018, peaking at 18.64 in September 2020, and then decreased to approximately 14.51 by December 2021. The peak suggests faster payments to suppliers during mid-2020, followed by a slowdown in payments afterward.

Working Capital Turnover

Working capital turnover increased sharply from 3.39 in March 2018 to a peak of 6.89 in June 2019, then decreased significantly to a range around 3.2 to 5.0 during 2020 and 2021. This pattern indicates improved efficiency in generating revenue from working capital before mid-2019, followed by reduced efficiency during 2020-2021.

Average Inventory Processing Period

The average inventory processing period extended from 54 days in March 2018 to 73 days by December 2021, indicating inventory is being held for longer durations, consistent with the declining inventory turnover ratio.

Average Receivable Collection Period

The average collection period fluctuated between 62 to 75 days over the observed periods, with a noticeable increase in 2020, peaking near 75 days in September 2020. This reflects slower collection of receivables during that period.

Operating Cycle

The operating cycle lengthened from 121 days in March 2018 to 145 days by December 2021. This increase is driven by longer inventory holding and receivables collection periods, signaling a lengthening in the overall cash-to-cash cycle.

Average Payables Payment Period

The average payables payment period generally increased from 20-26 days in 2018-2019 to as high as 29 days in December 2020, before stabilizing around 25 days by the end of 2021. This indicates some extension in payment terms or delayed payments to suppliers during 2020.

Cash Conversion Cycle

The cash conversion cycle (CCC) lengthened over time, starting close to 95 days in early 2018, rising steadily to about 120 days by December 2021. This highlights a slower conversion of invested capital back into cash, primarily due to longer inventory and receivables periods, despite some extension in payables period.

Cost of Revenue

The cost of revenue exhibited a generally stable trend from March 2017 through December 2019, fluctuating within a relatively narrow range around 2000 to 2200 million USD. A discernible decline occurred starting in the first quarter of 2020, coinciding with a drop to 1871 million USD. This reduction continued through mid-2020, reaching a low of 1594 million USD by June 2020. Subsequently, costs began to recover gradually in the latter half of 2020 and throughout 2021, achieving values close to or slightly above the pre-2020 levels by year-end 2021.

Inventories

Inventories demonstrated a general upward trajectory over the entire period examined. From an initial value of 1158 million USD in March 2017, inventories increased steadily with minor fluctuations, peaking at 1694 million USD by December 2021. Notably, despite a slight dip in mid-2020, inventories resumed their upward trend in 2021, with more pronounced increases particularly observed in the latter quarters of 2021.

Inventory Turnover Ratio

The inventory turnover ratio, available from the first quarter of 2018 onward, showed a declining trend throughout the period. Starting at 6.81 in March 2018, it fluctuated mildly but generally decreased, ending at 5.01 by December 2021. This decline suggests that inventory was being replenished at a slower rate relative to sales or cost of revenue over time, indicating potentially reduced efficiency in inventory management or changes in sales dynamics.

Overall Observations

The data reveal that while cost of revenue decreased significantly during the mid-2020 period—most likely linked to external economic factors—the inventory levels conversely rose steadily, especially after mid-2020. The declining inventory turnover further supports the notion of slowing inventory movement relative to revenue. These patterns may imply an accumulation of stock or slowed sales activity, potentially reflecting responses to market conditions during and after the pandemic-related disruptions.

Operating Revenue

The operating revenue displayed a generally stable trend from the first quarter of 2017 through the end of 2019, fluctuating within a range of approximately 3,400 to 3,800 million US dollars. This period was characterized by minor fluctuations without a significant upward or downward trajectory. In early 2020, a noticeable decline occurred, with revenue dropping sharply to a low of 2,564 million US dollars in the second quarter of 2020. This decline is likely attributable to external adverse conditions impacting the broader economy. Subsequent quarters showed a recovery pattern, with revenue increasing steadily throughout the latter half of 2020 and into 2021, ultimately surpassing pre-2020 levels by the end of 2021, reaching close to 3,679 million US dollars.

Trade Receivables

Trade receivables exhibited a generally increasing trend from early 2017 through 2018, peaking near 2,874 million US dollars in the first quarter of 2018 before trending downward slightly in the remainder of 2018 and 2019. A decline is observed in early 2020, coinciding with the revenue decline, reaching a low of approximately 2,156 million US dollars in the second quarter of 2020. Following this trough, trade receivables rebounded moderately through 2020 and continued to increase through 2021, ultimately attaining levels exceeding 2,800 million US dollars by the end of 2021. This recovery mirrors the pattern shown in operating revenue.

Receivables Turnover Ratio

The receivables turnover ratio, which indicates the efficiency of collecting receivables, was relatively stable around the 5.0 to 5.7 range from 2017 through 2019. It reached a peak of 5.91 in the third quarter of 2019, suggesting an improvement in collection efficiency during that period. However, beginning in early 2020, the ratio decreased to approximately 5.04 by the second quarter of 2020, reflecting slower collection amidst the revenue downturn. Stability at slightly lower levels persisted through 2020 and into 2021, with minor fluctuations around the 5.0 to 5.2 range. This indicates a mild deterioration in collection efficiency relative to the pre-2020 period, despite the rebound in revenue and receivables.

The data displays quarterly financial trends over several years, focusing on cost of revenue, accounts payable, and payables turnover ratio.

Cost of Revenue

The cost of revenue shows a generally stable pattern with minor fluctuations from 2017 through the end of 2019, hovering around the 2000 to 2200 million USD range. Starting in early 2020, there is a noticeable decline reaching a low in the second quarter of 2020 at 1594 million USD, likely reflecting external disruptions. Following this trough, there is a gradual recovery with figures increasing steadily through to the end of 2021, although not consistently surpassing earlier peak levels.

Accounts Payable

Accounts payable demonstrates a somewhat cyclical trend with increases and decreases spread across the periods. It peaks in early 2018 at 655 million USD before declining through most of 2019 and hitting a low in mid-2020 at 402 million USD. Post this trough, accounts payable recovers and trends upward through 2021, reaching levels similar to the pre-decline period. The fluctuation may correspond to operational changes or payment terms adjustments during the analyzed timeframe.

Payables Turnover Ratio

The payables turnover ratio, available from March 2018 onwards, shows variability but generally remains within a range of approximately 12.8 to 18.6. High points occur in the second quarter of 2020 (18.64), coinciding with the period when accounts payable and cost of revenue were at their lowest, indicating faster payment cycles during this time. After this peak, the ratio declines and stabilizes around mid to high teens, suggesting a normalization of payment processes through 2021.

In summary, the period from early 2020 reflects significant impacts on cost structures and payables, likely due to economic disruptions. The subsequent recovery phases show improvements in all metrics, with cost of revenue and accounts payable returning toward previous levels and payables turnover indicating adjustments in vendor payment pacing.

The analysis of the quarterly financial data reveals several notable trends over the period from March 2017 through December 2021.

Working Capital

Working capital values exhibit fluctuations throughout the reported quarters. Starting from 3,555 million US dollars in March 2017, there is an upward trend reaching a peak of approximately 4,225 million by December 2017. Subsequently, a decline occurs through 2018, bottoming near 2,236 million by the end of the year. In 2019, the working capital fluctuates with a modest increase mid-year but again decreases by year-end. The year 2020 shows relative stability with values hovering in the 3,400 to 3,900 million range despite the impact of global events, followed by another decline to about 2,904 million by December 2021. Overall, the working capital demonstrates cyclicality with peaks typically in the first quarter and troughs in later quarters, along with a general long-term decreasing tendency in the later years.

Operating Revenue

Operating revenue maintains a moderate growth trajectory in the earlier part of the period, rising from 3,471 million US dollars in early 2017 to a high of approximately 3,831 million in mid-2018. Subsequently, revenues show some volatility and a slight downward trend in late 2018 and throughout 2019, with values declining to around 3,469 million by the end of 2019. The year 2020 demonstrates a significant dip in operating revenue during the second quarter at 2,564 million, consistent with broader economic disruptions during that period, but recovers gradually in the following quarters to reach approximately 3,475 million by the end of 2020. In 2021, revenue stabilizes and slightly increases, with fluctuations between 3,544 and 3,679 million, indicating some recovery and resilience over time.

Working Capital Turnover

The available data for working capital turnover, starting from around March 2018, reveals a peak reaching 6.89 times in the first half of 2019. This suggests an increase in efficiency in using working capital to generate sales during this period. However, following this peak, the turnover falls significantly to values near 3.5 toward the end of 2019 and continues to fluctuate between 3.2 and 4.0 times through 2020 and 2021. By the final quarter of 2021, turnover increases again to roughly 4.98 times, indicating an improvement in working capital utilization. The variations suggest periodic shifts in operational efficiency or changes in the composition of working capital and sales.

Summary of Patterns

Overall, the data indicate that working capital levels experience cyclical fluctuations with some long-term decreases, especially evident during 2020 and 2021. Operating revenue generally follows a seasonal and cyclical pattern, showing resilience despite disruptions in 2020 but with some softness compared to prior peaks. Working capital turnover highlights periods of high efficiency around 2018-2019 followed by reductions in following years and a partial rebound toward the end of 2021. These dynamics suggest that the company faced operational and market challenges impacting liquidity and sales generation capabilities but demonstrated capacity for partial recovery in later periods.

Inventory Turnover Ratio

The inventory turnover ratio displays a declining trend over the periods analyzed. Starting from a high point of 7.03 in the first quarter of 2019, the ratio gradually decreases to 5.01 by the fourth quarter of 2021. This consistent reduction indicates that the company is turning over its inventory less frequently, which may suggest slower sales or increased inventory levels.

Average Inventory Processing Period

The average inventory processing period, which measures the number of days inventory is held before being sold, shows an increasing trend. Beginning at 52 days in the last quarter of 2018, the period extends progressively, reaching 73 days by the fourth quarter of 2021. This increase corresponds inversely with the declining inventory turnover ratio, reinforcing the observation of slower inventory movement.

Overall Analysis

The juxtaposition of these two measurements points to a lengthening inventory cycle, implying that inventory is being held for longer durations before sale. This could be attributed to changes in demand, supply chain conditions, or inventory management strategies. The sustained trend over multiple quarters suggests a structural change rather than a temporary fluctuation.

Receivables Turnover Ratio

The receivables turnover ratio demonstrates a fluctuating pattern over the periods from March 2018 to December 2021. Beginning at 5.45 in March 2018, the ratio slightly decreases to 5.08 in June 2018, then experiences a modest increase reaching 5.69 by December 2019. In 2020, the ratio shows some volatility, peaking at 5.91 in September before declining to 5.04 in December. The trend from 2021 indicates relative stabilization, with values ranging narrowly between 4.84 and 5.22, suggesting a subtle decrease in turnover efficiency compared to the 2019 peak.

Average Receivable Collection Period

The average receivable collection period reveals an inverse relationship with the receivables turnover ratio. Initially recorded at 67 days in March 2018, the collection period fluctuates modestly but tends to stay within a range of 62 to 75 days. Notably, in the quarters of 2020 and 2021, the collection period extends, peaking at 75 days in September 2020 before slightly decreasing to 70-72 days towards the end of 2021. This increase in collection days may indicate a slowdown in collections or more lenient credit terms during this period.

Overall Observations

The data reflects a period of moderate variability in the company's management of receivables. The declining trend in receivables turnover ratio coupled with the lengthening average collection period in some intervals could suggest emerging challenges in receivables management, possibly influenced by external economic factors or internal policy adjustments. However, the relatively narrow range of change also points to consistency in operational practices over the analyzed timeframe.

The financial data reveals key trends in the company's inventory management, receivable collection efficiency, and overall operating cycle over several quarterly periods.

Average Inventory Processing Period

This metric shows a generally increasing trend over the reported quarters. Starting at 54 days in March 2018, the period hovers around the mid-50s for several quarters before increasing steadily from 57 days in June 2020 to 73 days by December 2021. The upward trend indicates that the company is taking longer to convert inventory into sales, which may suggest slower inventory turnover or changes in inventory management practices.

Average Receivable Collection Period

The receivable collection period exhibits fluctuations but generally remains within a relatively narrow range, starting around 67 days in March 2018 and showing several ups and downs across the periods. Notably, there is a dip to 62-64 days during late 2018 and early 2019, implying improved collection efficiency during that time. However, from mid-2020 onward, the collection period increases again, reaching up to 75 days in September 2021. This suggests some challenges in accounts receivable collection or potentially more lenient credit terms during the latter periods.

Operating Cycle

The operating cycle closely follows the combined effects of inventory processing and receivable collection periods. Beginning at 121 days in March 2018, it peaks at 145 days by December 2021, indicating a lengthening of the total time taken from inventory purchase through to cash collection. The trend upward over the years reflects the longer inventory holding and extended receivable collection periods noted previously, which could impact cash flow efficiency.

In summary, the data indicates a lengthening in both inventory turnover and receivable collection durations over the observed periods, resulting in an extended operating cycle. This suggests potential operational challenges related to inventory management and credit collection that may warrant further attention to improve working capital efficiency.

Payables Turnover

The payables turnover ratio demonstrates notable fluctuations over the observed periods. Starting at 14.08 at the end of 2017, it initially declines to a low of 12.81 in the third quarter of 2021, with intermittent peaks reaching as high as 18.64 in the third quarter of 2020. This pattern indicates variability in the speed at which the company settles its payables, reflecting changing payment practices or supplier negotiation conditions. The highest turnover ratios correspond to faster payments, while lower ratios indicate slower turnover of payables.

Average Payables Payment Period

The average payables payment period generally moves inversely to payables turnover, as expected due to their relationship. It starts at 26 days at the end of 2017, briefly decreases to around 20-21 days during mid-2020, suggesting quicker payments, then increases to a peak of 29 days in the second quarter of 2021 before settling back around 25 days by the end of 2021. These variations suggest periods where the company slowed its payment schedules, possibly to manage cash flow, followed by phases of accelerated payments.

Overall Insights

The trends reveal a dynamic approach in managing payables, balancing between improving supplier relations through faster payments and optimizing working capital by extending payment periods. The increased payables turnover and reduced days payable period during 2020 may reflect attempts to strengthen vendor partnerships during uncertain economic times, whereas a lengthening period in 2021 could indicate a strategic extension of payables to preserve liquidity. The fluctuations highlight active financial management responsive to changing business conditions.

Average Inventory Processing Period

The average inventory processing period exhibits a generally increasing trend from March 2018 through December 2021. Starting at 54 days in March 2018, it fluctuates slightly before rising steadily from 57 days in June 2020 to 73 days in December 2021. This pattern suggests lengthening inventory holding time, which could indicate slower inventory turnover or changes in inventory management practices over the observed period.

Average Receivable Collection Period

The receivable collection period shows moderate fluctuations but remains relatively stable around the mid-to-high 60-day range for the majority of the timeline. There is a noticeable increase starting in March 2020, peaking at 75 days in September 2021, before a slight decrease to 72 days in December 2021. This suggests some challenges or changes in credit and collection policies during the latter periods, possibly reflecting external market conditions influencing customer payment behavior.

Average Payables Payment Period

The payables payment period generally decreases from 26 days in March 2018 to a low of 20 days in June 2020, indicating faster payments to suppliers during this timeframe. However, from mid-2020 onwards, it rises again to around 25-29 days, suggesting a trend towards extending payment terms or slower payment cycles. This fluctuation reflects shifts in the company's management of cash outflows and supplier negotiations.

Cash Conversion Cycle

The cash conversion cycle remains stable around 95 to 101 days from March 2018 to December 2019, with minor variations. From early 2020, it begins an upward trajectory, reaching 120 days by December 2021. This increase is primarily driven by longer inventory processing and receivables collection periods, indicating a longer time to convert resources into cash. This trend may reflect operational challenges or strategic adjustments to working capital management amid changing business conditions.