Automatic Data Processing Inc (ADP)

Activity ratios

Short-term

Turnover ratios

	Jun 30, 2024	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020
Inventory turnover	—	—	0.27	0.35	0.32
Receivables turnover	5.60	5.98	5.20	5.50	5.98
Payables turnover	146.95	144.68	119.52	86.13	82.80
Working capital turnover	41.52	—	—	5.67	10.15

Inventory turnover measures how efficiently a company manages its inventory. In the case of Automatic Data Processing Inc, the inventory turnover ratios for the past three years have been 0.27, 0.35, and 0.32. These ratios imply that the company is holding onto its inventory for a longer period in recent years, which may indicate slower sales or potential issues in inventory management.

Receivables turnover reflects how effectively a company collects its accounts receivable. Automatic Data Processing Inc has shown consistent receivables turnover ratios of around 5.5 to 6 over the past five years. This suggests that the company is efficient in collecting payments from its customers.

Payables turnover measures how quickly a company pays its suppliers. Automatic Data Processing Inc has demonstrated improving payables turnover ratios over the years, with values of 82.80 in 2020, 86.13 in 2021, 119.52 in 2022, 144.68 in 2023, and 146.95 in 2024. These increasing ratios indicate that the company is taking more time to settle its payables, which could potentially be advantageous in managing cash flow.

Working capital turnover indicates how efficiently a company utilizes its working capital to generate sales. Automatic Data Processing Inc has shown variations in working capital turnover ratios over the years, with values of 10.15 in 2020, 5.67 in 2021, and 41.52 in 2024. The significant increase in the working capital turnover ratio from 2021 to 2024 suggests a more effective utilization of working capital in generating sales revenue.

Overall, while the inventory turnover for Automatic Data Processing Inc has been declining, the company has exhibited strength in managing receivables efficiently and improving payables turnover. The notable increase in working capital turnover also indicates a positive trend in utilizing working capital resources effectively for generating sales.

Average number of days

		Jun 30, 2024	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020
Days of inventory on hand (DOH)	days	—	—	1,373.63	1,048.37	1,154.32
Days of sales outstanding (DSO)	days	65.16	60.99	70.14	66.34	61.08
Number of days of payables	days	2.48	2.52	3.05	4.24	4.41

Based on the activity ratios of Automatic Data Processing Inc over the past five years:

1. Days of Inventory on Hand (DOH):
- The company's DOH has been improving over the years. It is noteworthy that in 2021, there was a significant decrease in the number of days it takes for the company to sell its inventory compared to the previous years. This indicates efficient inventory management and better control over stock levels, which helps in reducing carrying costs and potential obsolescence.

2. Days of Sales Outstanding (DSO):
- The DSO has been fluctuating but has remained relatively stable over the years. In 2024, there was a slight increase in the number of days it takes for the company to collect its receivables, indicating a possible delay in receiving cash from sales. However, the past performance suggests overall effective credit management and collection practices.

3. Number of Days of Payables:
- The number of days of payables has been decreasing steadily over the years. This indicates that the company is taking fewer days to pay its suppliers, potentially improving relationships and securing better credit terms. A lower number of days of payables can also suggest improved liquidity and efficient working capital management.

Overall, the activity ratios of Automatic Data Processing Inc suggest a trend towards more efficient management of inventory, receivables, and payables, which are crucial aspects of the company's operational performance and financial health.

Long-term

	Jun 30, 2024	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020
Fixed asset turnover	28.01	26.43	25.28	21.92	20.73
Total asset turnover	0.35	0.35	0.26	0.31	0.37

The long-term activity ratios of Automatic Data Processing Inc, as reflected in the fixed asset turnover and total asset turnover, indicate the efficiency with which the company is utilizing its assets to generate sales revenue.

1. Fixed Asset Turnover:
- The fixed asset turnover ratio has shown a consistent and positive trend over the past five years, increasing from 20.73 in 2020 to 28.01 in 2024. This signifies that the company is efficiently utilizing its fixed assets to generate sales.
- A higher fixed asset turnover ratio indicates that Automatic Data Processing Inc is effectively managing its long-term assets to generate higher sales, reflecting operational efficiency and productivity improvements over the years.
- The steady increase in the fixed asset turnover ratio suggests that the company has been successful in maximizing the utilization of its fixed assets to drive revenue growth.

2. Total Asset Turnover:
- The total asset turnover ratio has fluctuated slightly over the past five years, with values ranging from 0.26 in 2022 to 0.37 in 2020.
- The total asset turnover ratio reflects how efficiently the company is using all its assets (both long-term and short-term) to generate sales. A lower ratio could indicate inefficiencies in asset utilization.
- While the total asset turnover ratio has not shown a clear trend upwards or downwards, it is important to consider the industry benchmarks and specific operational factors affecting the company's asset turnover efficiency.

In summary, Automatic Data Processing Inc has demonstrated an improvement in utilizing its fixed assets efficiently to generate sales revenue, as evidenced by the increasing trend in the fixed asset turnover ratio. However, the total asset turnover ratio shows some variability, indicating the importance of a thorough analysis of all asset categories to assess overall asset management effectiveness.