Now Inc (DNOW)

Short-term

Turnover ratios

The activity ratios for NOW Inc indicate the efficiency of the company in managing its operational assets and liabilities over the past five years.

1. Inventory Turnover: NOW Inc's inventory turnover ratio has been relatively stable over the past five years, ranging from 4.28 to 5.10. This metric indicates how efficiently the company is managing its inventory levels and converting them into sales. A higher turnover ratio suggests that the company is selling its inventory quickly, which can help prevent holding excess inventory.

2. Receivables Turnover: The receivables turnover ratio measures how efficiently NOW Inc is collecting payments from its customers. The company's ratio has shown improvement over the years, increasing from 5.37 in 2021 to 6.04 in 2023. A higher turnover ratio indicates that the company is collecting its receivables more quickly, which can help improve cash flow and reduce the risk of bad debts.

3. Payables Turnover: The payables turnover ratio reflects how quickly NOW Inc is paying its suppliers. The company's ratio has fluctuated over the years but has generally remained between 5.36 and 9.27. A higher turnover ratio suggests that the company is managing its payables efficiently, potentially benefiting from early payment discounts or favorable payment terms.

4. Working Capital Turnover: The working capital turnover ratio measures how effectively NOW Inc is using its working capital to generate revenue. The company's ratio has varied over the years, with a notable decrease in 2023 compared to 2019. A higher turnover ratio indicates that the company is efficiently utilizing its working capital to generate sales.

Overall, the activity ratios suggest that NOW Inc has generally maintained efficient control over its inventory, receivables, payables, and working capital over the past five years. However, it is important for the company to continue monitoring and improving these ratios to optimize its operational efficiency and financial performance.

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Average number of days

The activity ratios of NOW Inc over the past five years indicate trends in its inventory management, accounts receivable collection, and accounts payable payment processes.

1. Days of Inventory on Hand (DOH):
- The days of inventory on hand have fluctuated over the years, ranging from 71.57 days in 2021 to 85.32 days in 2022. This ratio measures how many days it takes for the company to sell its inventory.
- A decrease in DOH from 2022 to 2023 suggests an improvement in inventory turnover efficiency as the company is holding less inventory on hand.
- However, the current DOH of 74.80 days is still higher compared to 2021, indicating there may be room for further optimization in inventory management.

2. Days of Sales Outstanding (DSO):
- The days of sales outstanding have also varied, with a notable increase from 44.64 days in 2020 to 68.01 days in 2022. This metric reflects the average number of days it takes for the company to collect payments from its customers.
- The decrease in DSO from 2022 to 2023 to 60.39 days indicates an improvement in accounts receivable collection efficiency.
- Although the current DSO is lower than in 2022, it remains relatively high compared to earlier years, suggesting the company may still have room to enhance its collection processes.

3. Number of Days of Payables:
- The number of days of payables has been relatively stable over the years, ranging from 39.36 days in 2019 to 68.07 days in 2022. This ratio reflects the number of days it takes for the company to pay its suppliers.
- The increase in days of payables from 2022 to 2023 to 58.86 days indicates a potential extension in the payment period to suppliers.
- Compared to previous years, the current number of days of payables is higher, suggesting that the company may be utilizing supplier credit more effectively.

In summary, NOW Inc has shown improvements in inventory turnover and accounts receivable collection efficiency in the most recent year, but there are opportunities for further enhancement in inventory management and working capital management to optimize operational performance.

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Long-term

The fixed asset turnover ratio measures how efficiently NOW Inc is utilizing its fixed assets to generate revenue. From 2019 to 2023, the fixed asset turnover ratio has shown some fluctuations but generally stayed at relatively high levels, indicating that the company has been effective in generating revenue using its fixed assets.

On the other hand, the total asset turnover ratio measures how efficiently NOW Inc is using all its assets to generate sales. The trend for this ratio has been declining over the past five years, from 1.85 in 2019 to 1.52 in 2023. This indicates that the company's overall efficiency in generating sales from all its assets has been decreasing.

The high fixed asset turnover ratio coupled with the decreasing total asset turnover ratio suggests that while NOW Inc is effectively utilizing its fixed assets, there may be inefficiencies in utilizing its total assets to generate revenue. Further analysis would be needed to understand the reasons behind this trend and to identify potential areas for improvement in asset utilization efficiency.