Donaldson Company Inc (DCI)

Short-term

Turnover ratios

The activity ratios of Donaldson Company Inc over the specified periods reflect several trends concerning the company's operational efficiency in managing inventory, receivables, payables, and working capital.

Inventory Turnover:
The inventory turnover ratio exhibits fluctuations throughout the analyzed timeframe, with a general trend toward stabilization around the mid-2021 period. Starting at 5.11 on October 31, 2020, the ratio declined to a low of approximately 4.21 by April 30, 2022, indicating a modest slowdown in inventory movement. Subsequently, there is a gradual recovery, reaching peak values around 5.43 as of July 31, 2023, before slightly declining to approximately 4.53 by October 31, 2024. This suggests periods of inventory build-up and liquidation, with overall moderate efficiency in inventory management consistent with industry standards.

Receivables Turnover:
Receivables turnover ratios increased steadily over the period, from 5.47 at October 31, 2020, to a high of 6.08 on January 31, 2025. This trend indicates improving collection efficiency, with shorter collection periods over time. The consistent upward movement reflects enhanced credit policies or collection efforts, contributing to better cash flow management.

Payables Turnover:
The payables turnover ratio shows variability but remains relatively stable within a range, generally fluctuating between approximately 6.11 and 8.04. Initially, the ratio was higher at 8.04 on October 31, 2020, decreasing to around 6.11 in July 2024, then oscillating back toward 6.52 by July 31, 2025. The decreases imply extended payment periods to suppliers, potentially reflecting improved cash management or negotiations for better payment terms. The overall pattern indicates a balanced approach to managing trade payables to optimize working capital without jeopardizing supplier relationships.

Working Capital Turnover:
This ratio demonstrates a marked upward trend, especially from 3.52 on October 31, 2020, to a peak of nearly 8.21 at January 31, 2024. The increase signifies greater efficiency in utilizing working capital to generate sales or revenue activity, with shorter cycle times and improved operational leverage. After reaching its peak, the ratio fluctuates but remains elevated relative to the initial period, suggesting sustained improvements in operational efficiency.

General Observations:
Across all ratios, there is evidence of progressive improvement in receivables collection and working capital utilization, complemented by stable or slightly varying inventory and payables management. These trends indicate that Donaldson Company Inc has been refining its operational processes to enhance liquidity and operational efficiency. The ratios collectively point to a company that is capable of managing its assets effectively, reducing working capital requirements relative to sales, and maintaining a balanced approach to inventory and payables management to support ongoing performance.

Overall, these activity ratios portray a company progressing toward heightened operational efficiency, with a focus on optimizing receivables collections and working capital deployment, while maintaining adequate control over inventory levels and supplier relationships.

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Average number of days

The activity ratios for Donaldson Company Inc., as reflected through the provided data on Days of Inventory on Hand (DOH), Days of Sales Outstanding (DSO), and Days of Payables, demonstrate notable trends and patterns over the specified periods up to October 2024.

Inventory Days on Hand (DOH):
The company's inventory holding period exhibits fluctuations, with a peak of approximately 86.77 days around April 2022, indicating a period of higher inventory accumulation. Since then, there has been a general downward trend, reaching approximately 67.22 days in July 2023, suggesting efforts to improve inventory turnover. Post mid-2023, the DOH increases modestly to around 80.60 days by October 2024, signaling a slight slowing in inventory turnover or potential stockpile accumulation.

Days of Sales Outstanding (DSO):
The receivables collection period remains relatively stable, with minor fluctuations over time. It ranges roughly between 61 and 70 days across the observed periods. Notably, there is a decrease from about 66.69 days in October 2020 to approximately 61 days in October 2022, indicating improved receivables management. However, in early 2024, DSO begins to edge upward, reaching approximately 65 days, which may suggest slight delays in receivables collection or changing customer payment patterns.

Days of Payables:
The company's payment period with suppliers shows a gradual increase from roughly 45 days in October 2020 to a high of around 58.76 days in April 2024. After this peak, the payables period stabilizes slightly, hovering around 55 to 59 days through mid-2025. This trend indicates a tendency toward extending payment terms with suppliers, potentially optimizing working capital management but also possibly impacting supplier relationships if prolonged excessively.

Overall Insights:
The combined analysis indicates that Donaldson Company Inc. has demonstrated efforts to improve inventory turnover and receivables collection efficiency until around 2022-2023, with subsequent periods reflecting some slowing or stabilization. The extending of payable days suggests an emphasis on managing short-term liquidity and working capital, aligning with prudent cash flow strategies. Continuous monitoring and balancing of these ratios are essential to maintain operational efficiency and supplier relationships.

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Long-term

The analysis of Donaldson Company Inc.'s long-term activity ratios reveals insights into the company's asset utilization efficiency over the specified periods. The Fixed Asset Turnover ratio demonstrates a general upward trend from 4.13 in October 2020 to a peak of 5.74 in October 2022, indicating an increasing efficiency in deploying fixed assets to generate sales during this period. From late 2022 through mid-2023, the ratio experienced some fluctuation, declining slightly to 5.25 in July 2023 before modestly increasing again to 5.62 by October 2024, which suggests a stabilization in fixed asset utilization.

The Total Asset Turnover exhibits a consistent upward trajectory from 1.12 in October 2020 to a high of 1.35 in October 2022, reflecting improved overall efficiency in using total assets to generate revenue. After reaching this peak, the ratio experienced a gradual decline, settling around 1.20 to 1.25 in the subsequent periods, implying a slight reduction in the overall asset utilization efficiency, potentially due to increased investment in assets that have not proportionally translated into higher sales or operational scaling challenges.

Overall, the ratios indicate that Donaldson Company Inc. has made effective use of its fixed and total assets, especially between 2020 and 2022, with the ratios performing well above initial levels later on, albeit with some periods of marginal decline. These trends imply ongoing adjustments in asset deployment strategies, possibly reflecting strategic investments, operational restructuring, or market conditions affecting asset efficiency.