LyondellBasell Industries N.V. (NYSE:LYB)

The analysis of the financial ratios over the observed periods reveals several noteworthy trends in the management of working capital components.

Inventory Turnover

The inventory turnover ratio shows a declining trend from 8.62 in March 2015 to 5.62 at the end of 2016, indicating a slower rate of inventory movement. However, from early 2017 onwards, the ratio stabilizes and gradually increases, reaching 7.11 by mid-2019, suggesting improved inventory management efficiency.

Receivables Turnover

Receivables turnover fluctuates between 13.23 and 9.81 across the periods, with a general downward tendency, especially notable after 2015. This implies a lengthening in the collection period of receivables, indicating potential challenges in cash inflows from customers.

Payables Turnover

The payables turnover ratio declines from 12.71 to around 9.69-10.54 later in the timeline, reflecting slower payment to suppliers. This may indicate extended payment terms or cash management strategies aimed at preserving liquidity.

Working Capital Turnover

A downward trend appears from 7.35 in early 2015 to a low of 4.80 in late 2017, followed by a considerable rise to 11.61 in early 2019, before settling back near 10.38. This pattern suggests initially declining efficiency in generating sales from working capital, with a strong recovery in 2018-2019.

Average Inventory Processing Period

There is a clear increase in days inventory is held, growing from 42 days in early 2015 to a peak of 65 days at the end of 2016, indicating slower inventory turnover. Post-2016, this period gradually decreases to the low 50s by 2018 and 2019, reflecting improved inventory processing times.

Average Receivable Collection Period

The receivable collection period generally trends upwards from 28 days in early 2015 to a peak around 39 days in 2017-2018 before slightly decreasing toward 35-37 days by mid-2019. This suggests an extended time to collect receivables, which could affect cash flow timing.

Operating Cycle

The operating cycle, which sums inventory and receivables periods, lengthened from 70 days in early 2015 to over 100 days by late 2016, indicating slower overall operating asset turnover. Subsequently, the cycle shortens to the mid-80s by 2018, showing an improvement in operational efficiency.

Average Payables Payment Period

The payment period to suppliers gradually extends from 29 days in early 2015 to a range between 35 and 40 days during most of 2017-2019. This reflects a deliberate increase in payment time, potentially to optimize cash flow.

Cash Conversion Cycle

The cash conversion cycle increases from 41 days in early 2015 to around 64 days in late 2016, indicating a longer duration between cash outflows and inflows. Afterward, it reduces to about 49-50 days in 2018 but rises again to 56 days in mid-2019, signaling fluctuating efficiency in cash flow management.

Overall, the data points to a period of declining efficiency in managing inventory and receivables from 2015 through 2016, accompanied by longer operating and cash conversion cycles. Improvements are observed after this period, with more efficient working capital turnover and shorter inventory holding periods, although receivables collection and payables periods suggest cautious cash management strategies. The cash conversion cycle's fluctuations imply ongoing adjustments to optimize liquidity.

The analysis of the quarterly financial data reveals several notable trends in cost of sales, inventories, and inventory turnover over the reviewed periods.

Cost of Sales

The cost of sales exhibited a generally fluctuating pattern from March 2014 through June 2019. Initially, there was an upward trend reaching a peak of 10,255 million USD in June 2014, followed by a notable decline towards December 2014. In 2015, the cost of sales showed a marked decrease compared to 2014, with the lowest quarterly figures recorded in December 2015 at 5,792 million USD. From 2016 onwards, the cost of sales gradually increased with some volatility, peaking in the third quarter of 2018 at 8,499 million USD before declining again in 2019 to values around 7,446 to 7,542 million USD. Overall, the data suggests a reduction in cost of sales from 2014 highs, stabilizing at a lower level by the end of the period.

Inventories

Inventories showed a decreasing trend from 2014 through to the end of 2015, dropping from 5,589 million USD in March 2014 to approximately 4,051 million USD in December 2015. Following this decline, inventories mostly stabilized in the range of roughly 4,000 to 4,200 million USD during 2016 and 2017, with a slight increasing trend by 2017 year-end. Throughout 2018 and into mid-2019, inventories increased modestly, peaking near 4,685 million USD in June 2019. The overall trend indicates an initial reduction in inventory levels followed by a moderate and steady recovery towards the later periods.

Inventory Turnover

Inventory turnover ratios, available starting from March 2015, depict a decreasing trend from 8.62 times in the first quarter of 2015 to a low of 5.62 times in December 2015. After this trough, turnover ratios showed a recovery trend with gradual increases through 2016 and 2017, reaching levels above 6.5 times. In 2018, turnover ratios rose further, peaking at 7.51 in the third quarter but declined somewhat in the final quarter of 2018 and into 2019, settling around 6.66 by June 2019. These fluctuations in inventory turnover reflect changes in inventory management effectiveness and sales dynamics over the periods.

In summary, the reviewed financial metrics suggest that cost of sales decreased considerably after 2014, reaching a more moderate range in subsequent years, while inventories initially declined and later increased slightly. The inventory turnover ratio followed a somewhat inverse pattern to inventories, declining when inventories were reducing and improving as they stabilized and grew. These movements could reflect adjustments in operational efficiency, market demand, or supply chain dynamics during the periods analyzed.

The financial data reveals several notable trends across the reported periods. Revenues, represented by "Sales and other operating revenues," experienced fluctuations with a general downward trend observed between 2014 and 2016, followed by a partial recovery from 2017 through mid-2018, then declining again towards mid-2019. Specifically, revenues peaked around mid-2014, declined steadily into 2016, then showed intermittent increases and decreases thereafter.

Accounts receivable demonstrate a somewhat cyclical pattern, with values generally decreasing from early 2014 through the end of 2015, bottoming out in late 2015, followed by a trend of gradual increase from early 2016 through late 2018, before showing a reduction again in 2019. This suggests varying collection periods or changes in sales credit terms during these intervals.

The receivables turnover ratio, which indicates how efficiently the company collects its receivables, shows some volatility but generally trended downward from 2015 onward. Starting at 13.23 in March 2015, it declines towards levels near 9-10 by late 2018 and mid-2019, implying a slower collection rate over time. This decline could indicate longer credit terms or potential challenges in receivables collection efficiency.

Sales and other operating revenues

Peaked in mid-2014, declining through 2015 and early 2016, then partially recovering through 2017 and mid-2018 before experiencing another decline in 2019.

Accounts receivable

Decreased until late 2015, then increased through 2018, with a subsequent decline noted in 2019.

Receivables turnover ratio

Generally decreased from over 13 in early 2015 to around 9-10 by 2018-2019, indicating slower collection of receivables over time.

The analysis of the quarterly financial data reveals notable trends in cost of sales, accounts payable, and payables turnover ratios over the observed periods.

Cost of Sales

Cost of sales depicts a declining trend from March 2014 through December 2015, reducing from approximately 9,577 million USD to around 5,792 million USD. This reduction indicates a significant decrease in direct costs associated with production or goods sold during this period.

From early 2016 onwards, the cost of sales begins to rise steadily, reaching a peak of approximately 8,499 million USD by September 2018. This upward movement suggests an increase in production scale or input costs.

The final quarters show a slight decrease and stabilization, with figures around 7,442 to 7,542 million USD in the first half of 2019, indicating some cost control or changes in operational activities.

Accounts Payable

Accounts payable also demonstrates a general downward trend from March 2014 to December 2015, dropping from about 3,642 million USD to 2,182 million USD. This reduction aligns with the decrease in cost of sales, reflecting lower liabilities towards suppliers or service providers.

Starting in 2016, accounts payable shows a gradual increase, rising to a high of approximately 3,555 million USD by December 2018, which corresponds temporally to the rising cost of sales. This suggests an increase in credit purchases or delayed payments to suppliers.

In the first two quarters of 2019, accounts payable slightly decreases but remains near the 3,100 million USD level, indicating some efforts to manage payables or vendor relationships more actively.

Payables Turnover Ratio

The payables turnover ratio is available from March 2015 onward and generally shows a declining trend from March 2015 (12.71 times) to December 2018 (9.09 times). This decline suggests that the company is taking longer to pay its suppliers over time or that accounts payable is growing faster than the cost of sales.

There is a noticeable fluctuation during 2017, with a temporary increase reaching 11.18 times in March 2017, followed by a decline again. This may reflect periods of accelerated payment or operational adjustments.

In early 2019, the ratio increases modestly to around 10.50 times, indicating some improvement in the payment cycle or tighter management of liabilities.

Overall, the data suggests that the company experienced a contraction phase in cost and payable figures up to late 2015, followed by a recovery or expansion phase through 2018, with correlated increases in payables and a lengthening of payment periods. The recent stabilization and improvements in turnover ratios could indicate strengthened working capital management.

The working capital demonstrates a generally downward trend over the observed periods, starting from a high of 9,273 million US dollars and declining gradually to 3,274 million US dollars by March 31, 2019, before a slight increase to 3,550 million US dollars in June 2019. This decline indicates a reduction in the company's short-term assets net of liabilities, which could reflect improved efficiency or tightening liquidity.

Sales and other operating revenues display fluctuations across the periods but generally show a mixed pattern without strong consistent growth. Initially, revenues peak near 12,117 million US dollars in June 2014 but then decrease sharply reaching approximately 6,743 million US dollars by March 2016. Subsequently, revenues tend to recover and fluctuate around the 8,000 to 10,000 million US dollars range from 2017 onward, before dipping below 9,000 million US dollars in the first half of 2019. This variation suggests some volatility in sales performance over the years.

The working capital turnover ratio, which measures how efficiently working capital is utilized to generate sales, is only available for the later periods. It started at 7.35 for the March 2015 quarter and then shows a gradual decline to around 4.8 by December 2017, indicating reduced efficiency in the usage of working capital during this period. However, after December 2017, this ratio increases sharply to as high as 11.61 by March 2019, before slightly decreasing to 10.38 in June 2019. This rising trend toward the end of the period suggests a marked improvement in working capital management and the capability to generate higher sales relative to the capital invested in working capital.

In summary, the data reveals a reduction in working capital over time, coupled with fluctuating sales revenues and a significant improvement in working capital turnover in the most recent periods. This pattern may imply enhanced operational efficiency despite the lower level of working capital, although the variability in sales revenue highlights possible market or demand challenges affecting overall performance.

Working Capital

Downward trend from 9,273 million US$ to 3,274 million US$, with slight recovery toward the end.

Sales and Operating Revenues

Initial peak followed by decline and then fluctuation around 8,000-10,000 million US$, with a drop below 9,000 million in early 2019.

Working Capital Turnover Ratio

Early decline from 7.35 to approximately 4.8, then sharp increase to a peak of 11.61, indicating improved working capital efficiency.

The inventory turnover ratio exhibits a general declining trend from early 2015 through late 2016, moving from 8.62 to 5.62. This indicates a gradual slowdown in how frequently the company sold and replaced its inventory during this period. Starting in 2017, the ratio shows signs of recovery, rising steadily to a peak of 7.51 in mid-2018, before experiencing a slight decline but remaining above 6.5 towards mid-2019. This suggests an improvement in inventory management efficiency after the initial downturn.

Correspondingly, the average inventory processing period, expressed in number of days, shows an inverse relationship with the turnover ratio. From 2015 to the end of 2016, the inventory processing period lengthened considerably, increasing from 42 days to 65 days. This reflects slower inventory liquidation and potentially higher inventory holding costs. Beginning in early 2017, the period shortened, indicating faster processing of inventory, with days decreasing to a low of 49 in mid-2018. However, by mid-2019, the processing period slightly increased again to 55 days, pointing to a minor deceleration in inventory turnover.

Overall, the data describe a phase of declining inventory turnover efficiency from 2015 to 2016 followed by a recovery and subsequent stabilization through 2019. The fluctuations suggest adjustments in inventory management practices or external factors impacting sales velocity and stock management.

Inventory Turnover Ratio

Declined from 8.62 in early 2015 to 5.62 by late 2016, then recovered steadily to around 7.2 by mid-2019.

Average Inventory Processing Period

Increased from 42 days in early 2015 to 65 days by late 2016, then decreased to around 51 days in late 2018, with a slight rise to 55 days by mid-2019.

Trend Implications

Initial inventory turnover slowdown accompanied by longer holding periods, followed by improved turnover rates and reduced processing times, indicating enhanced inventory management efficiency post-2016.

Receivables Turnover Ratio

The receivables turnover ratio shows a general declining trend from early 2015 through mid-2019. Starting from a high of 13.81 in the second quarter of 2014, the ratio gradually decreases, reaching a low near 9.28 in the second quarter of 2017. Following this point, the ratio fluctuates modestly but remains relatively stable around the 9 to 11 range, ending at 9.81 in the second quarter of 2019. This trend indicates a slower rate of receivables collection over the years, suggesting that the company may be taking longer to convert its receivables into cash.

Average Receivable Collection Period

The average receivable collection period initially decreases from 31 days in the first quarter of 2015 to 26 days in the second quarter of 2014, then increases steadily from 26 days to around 39 days by late 2017. From early 2018 onwards, this metric fluctuates between 33 and 39 days, ultimately ending at 37 days in the second quarter of 2019. This increase over time reflects a lengthening duration for the company to collect its receivables, which corresponds with the declining receivables turnover ratio. The sustained higher collection period in recent years may hint at potential challenges in accounts receivable management or changes in credit terms.

Relationship Between Metrics

The inverse relationship between the receivables turnover ratio and the average collection period is evident. As the turnover ratio decreases, the days sales outstanding increase, corroborating the interpretation of slower receivables collection. This pattern suggests that the company’s efficiency in managing receivables has diminished somewhat during the observed period.

Average Inventory Processing Period

This metric shows a generally increasing trend from March 2015 through December 2016, rising from 42 days to a peak of 65 days. Subsequently, the period decreases gradually from early 2017 through mid-2019, fluctuating around the mid-50s to low 50s. This suggests an initial lengthening in the inventory holding time followed by an improvement in inventory turnover efficiency.

Average Receivable Collection Period

The receivable collection period displays more volatility across the periods. Starting at 28 days in March 2015, it fluctuates between 26 and 39 days over the four years. The highest values appear around late 2016 to 2018 with intermittent decreases thereafter. This indicates some irregularities or challenges in accounts receivable management with no clear long-term improvement or deterioration trend.

Operating Cycle

The operating cycle, reflecting the sum of inventory processing and receivable collection periods, experiences an upward trend from 70 days in early 2015 to a peak of 102 days in late 2016. After peaking, it gradually decreases but remains elevated relative to early 2015 levels, stabilizing around the mid-80s to low 90s by mid-2019. This pattern reflects initial elongation in working capital cycle duration, followed by a moderate contraction but not to prior lower levels.

Summary

Collectively, the data suggests that from 2015 through late 2016, there was a lengthening of both inventory processing time and total operating cycle, implying increased capital tied up in operations during this period. From 2017 onward, the company appears to have improved inventory management efficiency, reducing the inventory period. However, the receivable collection period remains relatively volatile without consistent improvement, impacting the operating cycle's overall reduction. As a result, while some operational efficiencies were achieved, receivables management may require further attention to optimize the cash conversion cycle fully.

The payables turnover ratio demonstrates a declining trend over the analyzed periods, starting from a high of 13.58 in June 2014 and gradually decreasing to lower levels around 9.09 to 10.54 in 2018 and 2019. This decrease suggests that the company is turning over its payables less frequently over time, which might indicate extended payment terms to suppliers or slower payment processing.

Correspondingly, the average payables payment period, measured in number of days, shows an increasing trend over the same period. Beginning at 27 days in June 2014, it rises steadily to around 36 to 40 days in the years 2016 through 2019. This increase confirms that the duration between the company incurring payables and settling them has lengthened, consistent with the decline in the payables turnover ratio.

Payables Turnover Ratio

Higher values observed in early periods (2014) reaching up to 13.58.

Noticeable steady decrease over time, with values stabilizing between approximately 9 and 10 in later years (2018-2019).

Average Payables Payment Period

Initially low values near 27 days in mid-2014.

Progressively increased over time, stabilizing close to 36-40 days from 2016 onwards.

These inverse movements between the payables turnover and the average payment period suggest a strategic change or operational shift in managing payables, potentially aimed at optimizing cash flow by extending payable durations. There is no evidence of abrupt volatility; instead, changes appear gradual and indicate a consistent trend over multiple quarters.

The analysis of the quarterly financial data reveals several distinct trends in the company's working capital management, particularly in inventory processing, receivables collection, payables payment periods, and the overall cash conversion cycle.

Average Inventory Processing Period

The average inventory processing period shows a generally increasing trend from early 2014 through the end of 2016, rising from 42 days to a peak of 65 days. Starting in 2017, the period begins to decline gradually, reaching 49 days by mid-2018 before stabilizing around the low 50s through mid-2019. This pattern suggests initial buildup in inventory holding times followed by improvements in inventory turnover efficiency in the later periods.

Average Receivable Collection Period

The receivable collection period exhibits some variability but remains relatively stable across the years. Early in the period examined, it fluctuates between 26 and 31 days. From late 2016 to 2018, there is a slight increase, peaking at 39 days in the first half of 2017 and maintaining levels near the upper 30s thereafter. Towards mid-2019, a modest reduction occurs, with collection periods decreasing to the mid-30 day range, indicating a moderate tightening of receivables management.

Average Payables Payment Period

The payables payment period generally trends upward from around 27 days in mid-2014 to a peak of roughly 40 days by late 2016. After this peak, the period fluctuates but remains within a range of approximately 33 to 40 days through mid-2019. This suggests a consistent effort to extend the payment period to suppliers, potentially to optimize cash flow, accompanied by variations that may reflect operational or market conditions.

Cash Conversion Cycle

The cash conversion cycle (CCC) mirrors the patterns seen in the underlying components, showing a gradual increase from about 41 days in early 2014 to a high of 64 days at the end of 2016. Following this peak, the CCC gradually declines, settling near 49-50 days from early 2018 onwards before a slight rise to 56 days in mid-2019. This indicates that while the company initially experienced longer durations to convert its investments in inventory and receivables into cash, there were subsequent improvements in the efficiency of working capital management.

Overall, the data reflects a period of increased operational holding and collection times through 2016, followed by a phase of modest improvements in inventory turnover and receivables management. Payables management appears to have been optimized by extending payment periods, contributing to controlling the cash conversion cycle. However, the slight uptick in the cash conversion cycle towards mid-2019 suggests some recent challenges in maintaining these efficiencies.