DR Horton Inc (DHI)

Short-term

Turnover ratios

Activity ratios provide insights into how efficiently a company manages its assets and liabilities to generate sales and cash flows. Let's analyze D.R. Horton Inc.'s activity ratios based on the provided data.

1. Inventory Turnover:
D.R. Horton's inventory turnover has fluctuated over the past five years, ranging from 1.06 to 1.26. A lower inventory turnover may indicate overstocking or slow-moving inventory, while a higher turnover typically suggests efficient inventory management. The latest ratio of 1.17 indicates a moderate pace of inventory turnover, which could imply relatively stable inventory management.

2. Receivables Turnover:
The company's receivables turnover demonstrates a strong trend of improvement, increasing from 90.55 in 2019 to 106.49 in 2023. This suggests that D.R. Horton is collecting its receivables at a faster rate, reflecting effective credit and collection policies. The high turnover ratio indicates that the company efficiently converts credit sales into cash, which is a positive signal for liquidity and working capital management.

3. Payables Turnover:
D.R. Horton's payables turnover has varied but remained relatively stable over the years. The recent payables turnover of 20.95 reflects that the company is paying its suppliers at a faster rate compared to previous years. A higher payables turnover may indicate effective cash management and favorable terms with suppliers, contributing to improved working capital efficiency.

4. Working Capital Turnover:
The working capital turnover ratio has shown a downward trend from 1.61 in 2021 to 1.49 in 2023. This suggests a decrease in the efficiency of utilizing working capital to generate sales. However, the ratio remains above 1, indicating that D.R. Horton is effectively using its working capital to support its sales activities.

In summary, D.R. Horton Inc. demonstrates efficient management of its receivables and payables, reflecting strong liquidity and working capital management. While the inventory turnover has been relatively moderate, the company's ability to convert receivables into cash and pay its payables efficiently bodes well for its overall operational effectiveness. However, the decline in working capital turnover warrants further attention to ensure optimal utilization of working capital in generating sales.

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Average number of days

To analyze D.R. Horton Inc.'s activity ratios, we will primarily focus on the days of inventory on hand (DOH), days of sales outstanding (DSO), and number of days of payables.

Days of Inventory on Hand (DOH):
DOH measures how many days it takes for a company to sell its inventory. A lower DOH value is generally preferable, as it indicates that inventory is being sold more quickly. D.R. Horton Inc.'s DOH has increased from 300.12 days in 2019 to 312.76 days in 2023. This suggests that the company is taking longer to sell its inventory, which may tie up capital and potentially indicate a need for enhanced inventory management to avoid excess stock levels.

Days of Sales Outstanding (DSO):
DSO represents the average number of days it takes a company to collect payment after a sale. A lower DSO indicates that the company is collecting its receivables more quickly. D.R. Horton Inc.'s DSO has fluctuated over the years, with a slight decrease from 3.71 days in 2019 to 3.43 days in 2023. This improvement suggests that the company is efficiently collecting payment from its customers.

Number of Days of Payables:
This metric reflects the average number of days it takes for a company to pay its suppliers. A higher number of days of payables suggests that the company is taking longer to pay its bills. D.R. Horton Inc.'s number of days of payables has slightly increased from 16.87 days in 2019 to 17.42 days in 2023. This indicates a slight delay in paying its suppliers, which can benefit the company by retaining cash for a longer period but may also strain supplier relationships if prolonged.

Overall, D.R. Horton Inc.'s activity ratios reveal a longer period for selling inventory, an improvement in collecting receivables, and a slight increase in the time taken to pay its suppliers. These indicators may point towards potential areas for operational efficiency improvements in inventory management and payables processing to maximize working capital and overall financial performance.

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Long-term

D.R. Horton Inc.'s long-term activity ratios, specifically the fixed asset turnover and total asset turnover ratios, provide insight into the efficiency with which the company utilizes its long-term assets to generate sales. Let's analyze the trends and implications of these ratios over the past five years.

The fixed asset turnover ratio reflects how efficiently the company generates sales from its fixed assets. D.R. Horton's fixed asset turnover has exhibited significant fluctuations over the past five years, ranging from 29.71 in 2020 to 79.61 in 2023. The notable increase in 2023 indicates that the company was able to generate significantly more sales from its fixed assets compared to the previous year. However, it's essential to consider that high fixed asset turnover ratios can also signify aggressive depreciation policies, which can overstate the efficiency of asset utilization. The company may have significantly invested in newer fixed assets, thus improving the turnover ratio. Despite the fluctuations, the company has maintained a relatively high fixed asset turnover ratio, suggesting that it efficiently utilizes its long-term assets to drive sales.

The total asset turnover ratio measures the efficiency of the company in using all its assets to generate sales. D.R. Horton's total asset turnover ratio has displayed a downward trend from 1.13 in 2019 to 1.09 in 2023. This indicates that the company is generating less revenue relative to its total assets over the years. A declining trend in the total asset turnover ratio might indicate that the company's total assets are not being utilized as effectively to generate sales, which may reflect inefficiencies in operations or a decrease in demand for its products. It is crucial for the company to evaluate its asset utilization efficiency and consider strategies to enhance the revenue generated from its total assets.

In summary, D.R. Horton Inc.'s fixed asset turnover ratio has shown fluctuating trends with an overall increase in 2023, indicating improved efficiency in generating sales from its fixed assets. However, the total asset turnover ratio has exhibited a declining trend over the same period, necessitating a closer examination of the company's overall asset utilization strategies.