Applied Materials Inc (AMAT)

Activity ratios

Short-term

Turnover ratios

	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019
Inventory turnover	2.84	2.64	3.23	2.81	2.37
Receivables turnover	4.71	3.92	4.12	5.43	5.56
Payables turnover	11.01	8.93	9.46	9.77	8.58
Working capital turnover	2.23	2.99	2.34	1.90	2.54

The activity ratios of Applied Materials Inc. provide insights into the company's efficiency in managing its inventory, receivables, payables, and working capital.

Inventory turnover measures how well the company is managing its inventory. The ratio has fluctuated over the past five years, with a slight decrease in 2022 followed by an increase in 2023. An inventory turnover of 2.47 in 2023 indicates that the company's inventory was sold and replaced 2.47 times during the year. This suggests a reasonable turnover rate, but there may be room for improvement.

The receivables turnover ratio reflects the company's ability to collect outstanding payments from its customers. Applied Materials Inc. has shown a consistent receivables turnover over the years, with a notable decrease in 2022. The 2023 ratio of 5.13 indicates that the company collected its outstanding receivables approximately 5.13 times during the year, which demonstrates an efficient collection process.

Payables turnover measures how quickly the company pays its suppliers and vendors. The company has experienced a steady increase in payables turnover over the years, reaching 9.56 in 2023. This indicates that Applied Materials Inc. is managing its payables efficiently, taking longer to pay its creditors.

The working capital turnover ratio reflects how effectively the company is using its working capital to generate sales. The decrease in this ratio from 3.02 in 2022 to 2.25 in 2023 indicates that the company's efficiency in generating sales from its working capital has declined. This could be due to changes in the company's operating cycle or sales strategy.

Overall, Applied Materials Inc. has shown reasonable efficiency in managing its inventory, collecting receivables, and managing payables. However, there may be opportunities to improve the utilization of its working capital for generating sales. Further analysis and comparison with industry benchmarks would provide additional insights into the company's performance.

Average number of days

		Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019
Days of inventory on hand (DOH)	days	128.39	138.17	112.91	129.79	154.22
Days of sales outstanding (DSO)	days	77.48	93.13	88.68	67.25	65.69
Number of days of payables	days	33.15	40.88	38.57	37.37	42.53

To analyze Applied Materials Inc.'s activity ratios, we will consider the days of inventory on hand (DOH), days of sales outstanding (DSO), and number of days of payables over the past five years.

Days of Inventory on Hand (DOH):
The DOH measures the average number of days that inventory is held before being sold. Applied Materials Inc.'s DOH has fluctuated over the past five years, with a high of 156.99 days in 2022 and a low of 129.46 days in 2021. In 2023, the DOH decreased to 147.85 days, indicating a more efficient management of inventory compared to the prior year.

Days of Sales Outstanding (DSO):
The DSO metric reflects the average number of days it takes for a company to collect revenue after a sale is made. Applied Materials Inc.'s DSO ranged from a low of 62.87 days in 2020 to a high of 85.90 days in 2022. The decreasing trend in DSO from 2022 (85.90 days) to 2023 (71.09 days) is favorable, indicating an improvement in the company's accounts receivable management.

Number of Days of Payables:
This metric represents the average number of days it takes a company to pay its suppliers. The number of days of payables for Applied Materials Inc. has fluctuated moderately over the past five years, with the lowest value of 38.17 days in 2023 and the highest value of 46.45 days in 2022.

Overall, Applied Materials Inc.'s activity ratios indicate improvements in inventory management and accounts receivable turnover, as evidenced by the decreasing trends in DOH and DSO in the most recent year. However, the number of days of payables has shown only minor fluctuations. These trends reflect the company's efforts in optimizing working capital and enhancing operational efficiency.

Long-term

	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019
Fixed asset turnover	9.65	11.09	11.80	10.57	9.55
Total asset turnover	0.86	0.96	0.88	0.76	0.77

The long-term activity ratios of Applied Materials Inc. provide insight into the company's efficiency in utilizing its assets to generate sales. The fixed asset turnover ratio, which measures the company's ability to generate sales from its fixed assets, shows a declining trend over the past five years, decreasing from 11.93 in 2021 to 9.74 in 2023. This indicates that the company's fixed assets are less efficient in generating revenue over this period.

On the other hand, the total asset turnover ratio, which measures the company's ability to generate sales from all its assets, including fixed and current assets, also exhibits a decreasing trend over the five-year period, declining from 0.89 in 2021 to 0.86 in 2023. This suggests that the company's overall asset utilization efficiency has weakened.

The decline in both fixed asset turnover and total asset turnover ratios may raise concerns about Applied Materials Inc.'s effectiveness in using its assets to generate revenue. It could imply potential inefficiencies in production, utilization of equipment, or investment in non-productive assets. Management may need to address these declining trends to optimize asset utilization and improve the company's long-term profitability.