Eaton Corporation PLC (ETN)

Short-term

Turnover ratios

Based on the provided data for Eaton Corporation PLC's activity ratios:

1. Inventory Turnover: The inventory turnover ratio measures how efficiently the company manages its inventory. Eaton's inventory turnover has been declining from 6.00 in March 2020 to 3.64 in December 2024. The decreasing trend indicates that the company is holding onto its inventory for a longer period, which may lead to higher carrying costs or obsolete inventory issues.

2. Receivables Turnover: Unfortunately, there is no data available for Eaton's receivables turnover ratio, which would have helped assess how quickly the company collects its accounts receivable. Without this information, it is challenging to evaluate the efficiency of Eaton's credit policy and collections.

3. Payables Turnover: Similarly, there is no data provided for Eaton's payables turnover ratio, which measures how quickly the company pays its suppliers. This ratio is essential for understanding the company's liquidity and relationships with its vendors.

4. Working Capital Turnover: This ratio reflects how efficiently the company utilizes its working capital to generate sales. Eaton's working capital turnover has shown fluctuations over the years, with a significant increase in June 2021, indicating a sudden boost in operational efficiency. The subsequent decrease and stabilization suggest a return to more typical operating levels. A higher turnover ratio is generally preferred as it indicates that the company is effectively using its working capital to support revenue generation.

In conclusion, while Eaton Corporation PLC's working capital turnover ratio has shown some fluctuations, the downward trend in inventory turnover and the lack of data for receivables and payables turnovers raise concerns about the company's inventory management efficiency and ability to collect receivables in a timely manner.

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Average number of days

Analysis of Eaton Corporation PLC's Activity Ratios:

1. Days of Inventory on Hand (DOH):
- The Days of Inventory on Hand shows the number of days it takes for Eaton Corporation PLC to sell its inventory.
- Generally, a decrease in DOH over time is favorable as it suggests efficient inventory management.
- The trend for Eaton Corporation PLC shows an increase in DOH from 60.87 days as of March 31, 2020, to 100.34 days as of December 31, 2024.
- The increasing trend indicates that Eaton Corporation PLC is holding inventory for a longer period, which may tie up working capital and increase storage costs. Management should focus on optimizing inventory levels.

2. Days of Sales Outstanding (DSO):
- Data for Days of Sales Outstanding is not available for Eaton Corporation PLC, which hinders the analysis of the company's efficiency in collecting accounts receivable.
- DSO measures how quickly a company is able to collect payments from its customers. Lower DSO values are generally preferable as they indicate faster cash conversion.
- Without DSO data, it is challenging to assess Eaton Corporation PLC's effectiveness in managing accounts receivable and cash flow from sales.

3. Number of Days of Payables:
- Similar to DSO, data for the Number of Days of Payables is not available for Eaton Corporation PLC. This limits the evaluation of the company's payment practices and relationships with suppliers.
- The Number of Days of Payables ratio indicates how long a company takes to pay its suppliers. Extending payment terms can provide a company with additional liquidity.
- Absence of payables data prevents insight into Eaton Corporation PLC's ability to negotiate favorable credit terms with suppliers and manage cash outflows effectively.

In conclusion, while the analysis of Days of Inventory on Hand suggests room for improvement in inventory management practices, the lack of data for Days of Sales Outstanding and Number of Days of Payables restricts a comprehensive assessment of Eaton Corporation PLC's overall efficiency in managing working capital and cash flow. Monitoring these activity ratios and striving for optimal levels can help enhance operational performance and financial health.

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See also:

Eaton Corporation PLC Short-term (Operating) Activity Ratios (Quarterly Data)

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Long-term

The Fixed Asset Turnover ratio for Eaton Corporation PLC has exhibited some fluctuations over the years, showing a general downward trend from March 31, 2020, to September 30, 2024. The ratio decreased from 7.10 on March 31, 2020, to its lowest point of 5.30 on March 31, 2021, before experiencing some variability but ultimately settling at 5.58 on December 31, 2022. It rebounded to 6.67 on March 31, 2023, before declining slightly in the following quarters.

In contrast, the Total Asset Turnover ratio has been relatively stable over the same period, hovering around the range of 0.52 to 0.61. It showed a slight increase from 0.52 on June 30, 2021, to 0.61 on March 31, 2024.

Overall, the Fixed Asset Turnover ratio indicates the efficiency of Eaton Corporation PLC in generating sales from its fixed assets, with a downward trend suggesting potential issues in asset utilization. In comparison, the Total Asset Turnover ratio reflects the company's ability to generate revenue from its total assets, with a relatively stable performance indicating consistent asset utilization efficiency.

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See also:

Eaton Corporation PLC Long-term (Investment) Activity Ratios (Quarterly Data)