Smith AO Corporation (AOS)

Short-term

Turnover ratios

Activity ratios provide insight into how efficiently a company manages its assets and liabilities in generating sales.

1. Inventory Turnover: A.O. Smith Corp.'s inventory turnover has been relatively stable over the past five years, averaging around 5 times per year. A higher inventory turnover ratio indicates that the company is selling its products quickly, which is positive for its cash flow and working capital management.

2. Receivables Turnover: A.O. Smith Corp.'s receivables turnover has also been consistent, showing an increasing trend over the years. This indicates that the company is collecting its accounts receivable more efficiently. A higher receivables turnover ratio signifies effective credit management and timely collection of sales, contributing to cash flow stability.

3. Payables Turnover: The payables turnover ratio has varied but generally remained within a certain range for A.O. Smith Corp. This ratio indicates how quickly the company pays its suppliers. A lower payables turnover ratio may suggest that the company is taking longer to pay its bills, potentially indicating good relationships with suppliers or effective cash management practices.

4. Working Capital Turnover: A.O. Smith Corp.'s working capital turnover has shown fluctuations over the years, with a significant increase in 2023. A higher working capital turnover ratio reflects how efficiently the company utilizes its working capital to generate revenue. Improvements in this ratio can indicate better management of current assets and liabilities to fund operations.

In summary, A.O. Smith Corp. has demonstrated relatively stable and improving activity ratios, reflecting effective management of its inventory, receivables, payables, and working capital to support its operational activities and financial performance.

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Average number of days

A.O. Smith Corp.'s activity ratios provide insights into the efficiency of its operations in managing inventory, collecting receivables, and paying its suppliers.

1. Days of Inventory on Hand (DOH):
- The DOH measures the average number of days a company holds inventory before selling it. The trend for A.O. Smith Corp. shows a slight increase from 61.03 days in 2019 to 76.67 days in 2023. This indicates the company might be holding onto inventory for a longer period, tying up capital and potentially facing risks like obsolescence.

2. Days of Sales Outstanding (DSO):
- The DSO metric evaluates how efficiently the company collects its accounts receivable. A lower DSO is preferable as it signifies faster cash conversion from credit sales. A.O. Smith Corp.'s DSO decreased from 71.90 days in 2019 to 56.46 days in 2023, indicating an improvement in collecting receivables promptly.

3. Number of Days of Payables:
- This metric focuses on how long a company takes to pay its suppliers. A higher number of days of payables indicates that the company is taking a longer time to settle its payables, potentially improving its cash flow position. A.O. Smith Corp.'s number of days of payables fluctuated over the years, ranging from 102.65 days in 2019 to 92.54 days in 2023.

Overall, A.O. Smith Corp. has shown mixed performance in its activity ratios over the years. While the company has improved its collection of receivables (DSO), it has seen an increase in the days of inventory on hand (DOH). Managing these ratios effectively is crucial for optimizing working capital and enhancing overall operational efficiency.

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Long-term

A.O. Smith Corp.'s fixed asset turnover has consistently improved over the past five years, indicating that the company is generating more revenue relative to its investment in fixed assets. This implies that the company is efficiently utilizing its fixed assets to generate sales.

The total asset turnover ratio also shows an increasing trend, which means that the company is becoming more efficient in generating sales revenue from its total assets. This indicates effective asset utilization and management.

Overall, the increasing trend in both fixed asset turnover and total asset turnover ratios suggests that A.O. Smith Corp. has been improving its operational efficiency and effectively utilizing its assets to generate revenue over the years. This is a positive indication of the company's operational performance and efficiency.