Cabot Corporation (CBT)

Short-term

Turnover ratios

The activity ratios of Cabot Corp. provide insight into the efficiency of the company's operations in managing its inventory, receivables, payables, and working capital over the past five years.

Firstly, the inventory turnover ratio measures how effectively the company is managing its inventory by indicating the number of times the inventory is sold and replaced over a specific period. Cabot Corp.'s inventory turnover has remained relatively stable over the past five years, ranging from 4.99 to 5.29. This indicates that the company has been consistent in efficiently managing its inventory levels.

Secondly, the receivables turnover ratio measures how efficiently the company is collecting its receivables from customers. Cabot Corp.'s receivables turnover remained relatively stable as well, ranging from 5.17 to 6.30 over the five-year period. A higher turnover indicates that the company is collecting its receivables more quickly, which is generally favorable.

Thirdly, the payables turnover ratio measures how efficiently the company is paying its suppliers and other creditors. Cabot Corp.'s payables turnover has shown a consistent increasing trend over the past five years, from 5.44 to 7.06. This indicates that the company is taking longer to pay its payables, potentially improving its cash flow position.

Finally, the working capital turnover ratio measures how effectively the company is using its working capital to generate sales revenue. Cabot Corp.'s working capital turnover has fluctuated over the years, with a significant decrease in 2021 to 12.26, followed by a sharp decline in 2022 to 6.04, and then further to 4.89 in 2023. This suggests that the company's sales revenue generated from its working capital has decreased significantly, indicating potential inefficiency in utilizing its working capital.

Overall, Cabot Corp.'s activity ratios reflect a consistent and efficient management of inventory and receivables, while the increasing payables turnover suggests a more favorable approach to managing the payment of its obligations. However, the declining trend in the working capital turnover ratio indicates a potential area for improvement in generating sales from its working capital.

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Average number of days

To assess Cabot Corp.'s efficiency in managing its inventory and receivables, as well as its payment practices, we can analyze the activity ratios based on the given data.

Days of Inventory on Hand (DOH):
The DOH measures how long, on average, inventory is held before being sold. From 2019 to 2023, Cabot Corp.'s DOH ranged from 61.98 to 73.14 days, indicating a moderate fluctuation in inventory management. The recent DOH of 69.06 days (2023) suggests that the company is holding inventory for approximately 69 days before it is sold.

Days of Sales Outstanding (DSO):
The DSO reflects the average number of days it takes for the company to collect its accounts receivable. Cabot Corp.'s DSO ranged from 57.97 to 70.62 days over the same period. The decrease in DSO from 2022 to 2023 (70.62 to 64.53 days) indicates an improvement in the collection of receivables, which may signify more efficient credit and collection policies.

Number of Days of Payables:
The number of days of payables measures how long, on average, the company takes to pay its suppliers. Cabot Corp.'s payables period ranged from 51.70 to 67.13 days over the past five years, with a notable decrease in 2023 compared to the prior year. The reduction from 56.62 (2022) to 51.70 days (2023) suggests that the company is paying its suppliers more quickly.

Overall, these activity ratios provide insights into Cabot Corp.'s efficiency in managing its inventory, collecting receivables, and paying its suppliers. The decreasing trend in DSO and payables days, along with a relatively stable DOH, indicates an improvement in inventory turnover, faster collection of receivables, and more efficient payables management, which could positively impact the company's cash flow and working capital management.

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Long-term

Sure, I'd be happy to help with that. Long-term activity ratios provide insight into how efficiently a company is utilizing its assets to generate sales. In this case, we will analyze Cabot Corp.'s fixed asset turnover and total asset turnover ratios over the past five years.

Fixed Asset Turnover:
The fixed asset turnover ratio measures how effectively a company is using its fixed assets to generate sales. A higher ratio indicates better efficiency in utilizing fixed assets.

Looking at Cabot Corp.'s fixed asset turnover ratio, we can see a fluctuating trend over the past five years. The ratio was 2.78 in 2023, compared to 3.40 in 2022, 2.48 in 2021, 1.99 in 2020, and back to 2.48 in 2019. The significant jump from 2020 to 2021 and back to 2023 suggests some variability in how efficiently the company is utilizing its fixed assets. It's important to note that a higher ratio in one year and a lower ratio in the subsequent year could indicate changes in the company's production or sales strategies, or possibly changes in the composition or value of its fixed assets.

Total Asset Turnover:
The total asset turnover ratio measures a company's ability to generate sales from its total assets. A higher ratio indicates better efficiency in utilizing all assets to generate sales.

Examining Cabot Corp.'s total asset turnover ratio, we can observe a generally increasing trend over the past five years. The ratio was 1.09 in 2023, compared to 1.23 in 2022, 1.03 in 2021, 0.94 in 2020, and 1.11 in 2019. This increasing trend suggests that the company has been more effective in using its total assets to generate sales. It's worth noting that a higher total asset turnover ratio can indicate that the company is operating more efficiently, but it could also mean that the company has a more asset-light operating model.

Overall, the analysis of Cabot Corp.'s long-term activity ratios indicates fluctuation in the efficiency of using fixed assets to generate sales, while the utilization of total assets for sales generation has shown a generally improving trend over the past five years. It's important for the company to assess the reasons behind the fluctuations in fixed asset turnover and the impact of the increasing total asset turnover on its overall business operations and strategies.