Freshpet Inc (FRPT)

Short-term

Turnover ratios

The activity ratios for Freshpet Inc., encompassing inventory turnover, receivables turnover, payables turnover, and working capital turnover, reveal trends indicative of operational efficiency and shifts in working capital management over the analyzed period.

Inventory Turnover:
The inventory turnover ratio shows a general declining trend from a peak of 9.72 times at the end of 2020, declining to lows around 5.31 in mid-2022. Subsequently, it demonstrates periods of recovery, rising back to approximately 8.39 in the third quarter of 2023 before stabilizing around 7.4 by early 2025. This pattern reflects an initial reduction in inventory management efficiency—possibly due to increased inventories or slower sales—and later improvement, indicating better inventory control or increased sales velocity over time.

Receivables Turnover:
The receivables turnover ratio fluctuates but generally trends upward across the period. Starting from approximately 12.41 times in mid-2020, it rises consistently, reaching over 16.19 in the first quarter of 2025. The increasing receivables turnover suggests an improvement in collection efficiency, with the company able to collect receivables more quickly over time.

Payables Turnover:
The payables turnover ratio exhibits significant volatility. It starts high at around 16.99 times in mid-2020, then declines sharply, reaching a low of approximately 3.81 in early 2022. Afterward, it shows a broad upward trend, surpassing previous levels and stabilizing around 14.21 by the first quarter of 2025. The fluctuations imply varying vendor payment terms or changes in the company's negotiation strategies; the recent stabilization at higher levels indicates more frequent payments or shorter payment cycles.

Working Capital Turnover:
This ratio displays considerable variation, with a notable low of approximately 0.98 in the first quarter of 2021, followed by a steady increase. From that low point, it increases significantly, reaching roughly 3.14 in the first quarter of 2025. The trend suggests an enhancement in the utilization of working capital, possibly reflecting improved operational efficiency or better management of current assets and liabilities.

Summary:
Overall, Freshpet Inc.’s activity ratios reflect a pattern of initial disruptions or inefficiencies during 2020 and early 2021, followed by gradual improvements. The rising receivables and payables turnover ratios indicate enhancements in receivables collection and payment practices, respectively. The inventory turnover shows recovery after a decline, suggesting better inventory management or increased sales activity. The increase in working capital turnover signifies more effective utilization of the company's short-term assets and liabilities, contributing to improved operational efficiency over the analyzed period.

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Average number of days

The activity ratios of Freshpet Inc., as reflected by key operational metrics—Days of Inventory on Hand (DOH), Days of Sales Outstanding (DSO), and Days of Payables—demonstrate the company’s evolving operational efficiency and working capital management over recent periods.

Inventory Management (DOH):
From June 30, 2020, to March 31, 2022, the DOH exhibited an increasing trend, rising from approximately 44.2 days to about 56.3 days. This indicates that the company was holding inventory for a longer period, potentially reflecting increased production cycles, efforts to expand inventory for anticipated sales growth, or management’s strategic buffer. After reaching a peak around March 2022, the DOH declined significantly to approximately 43.5 days by September 2023, and stabilized around 50 days thereafter. This reduction suggests improved inventory turnover, likely driven by better inventory control, streamlined supply chain processes, or efforts to reduce excess stock.

Receivables Collection (DSO):
The DSO shows a largely stable or improving pattern, with periods of slight fluctuation. Initially, from June 2020 to December 2021, DSO varied between approximately 21 and 33 days, indicating prompt collection from customers. Notably, in March 2022, DSO increased sharply to nearly 48 days, possibly reflecting credit policy adjustments or delays in receivables collection. However, from mid-2022 onward, the DSO generally trended downward, reaching roughly 22 days by March 2025, indicating an improvement in receivables collection efficiency. The shorter collection periods suggest that Freshpet Inc. has enhanced its cash flow management and customer credit policies over time.

Payables Management (Number of Days of Payables):
The payables period has experienced considerable variability, with some periods showing notably extended payment terms. During December 2021, payables reached approximately 59 days, which indicates extended credit with suppliers—possibly a strategy to optimize working capital or due to supplier financing arrangements. Conversely, in March 2022, payables dropped sharply to fewer than 23 days, suggesting a temporary acceleration in payments or cash conservation initiatives. Since then, the payables period has generally ranged between roughly 22 and 31 days, reflecting a relatively balanced approach to vendor payments, aligned with the company's cash flow position.

Overall Observations:
The combined trend of decreasing DOH and DSO alongside relatively stable payables suggests an ongoing effort to improve operational efficiency and liquidity management. The initial period of inventory accumulation aligns with growth or strategic stockpiling phases, followed by a period of inventory reduction, indicating a possible refocus on just-in-time inventory practices. The improving receivables collection times underpin healthier cash flow dynamics. Variations in payables periods align with strategic supplier negotiations or cash management policies. These changes collectively reflect a concerted effort to optimize the company's working capital cycle, balancing inventory levels, receivables collection, and payables to sustain operational agility.

In summary, Freshpet Inc.'s activity ratios indicate a trajectory from inventory build-up towards more efficient working capital utilization, alongside improved receivables management, positioning the company toward enhanced operational effectiveness over the analyzed period.

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Long-term

The long-term activity ratios for Freshpet Inc. exhibit notable trends over the analyzed period.

The Fixed Asset Turnover ratio demonstrates a consistent decline from 1.28 on June 30, 2020, to approximately 0.77 in June 2023. This downward trajectory indicates a decreasing efficiency in generating sales from the company's fixed assets over time. Such a trend may reflect increased investment in fixed assets without proportionate growth in sales, or a decrease in asset utilization efficiency.

In contrast, the Total Asset Turnover ratio fluctuated within a narrower range, beginning at 0.68 on June 30, 2020, and gradually increasing to approximately 0.65 by March 2025. This ratio shows a slight upward trend after reaching a low point of 0.43 in March 2022, suggesting that the overall utilization of total assets in generating sales has improved incrementally. The upward movement in this ratio signals better asset management or recent improvements in operational efficiency, although the ratio remains relatively modest.

Overall, these ratios suggest that while fixed asset efficiency has significantly declined, total asset efficiency has experienced a mild recovery. The divergence may indicate that while the company has invested heavily in fixed assets, it has not consistently translated those investments into proportional sales growth. Further analysis of asset composition and operational strategies would be necessary to fully understand these dynamics.