Kodiak Gas Services, Inc. (KGS)

Short-term

Turnover ratios

The activity ratios of Kodiak Gas Services, Inc. from December 31, 2020, to December 31, 2024, reveal notable trends in inventory management, receivables collection, payables management, and overall working capital efficiency.

Inventory Turnover:
The inventory turnover ratio experienced an initial decline from 7.16 in 2020 to 4.35 in 2021, followed by a further decrease to 3.71 in 2022. This suggests that the company's inventory was turning over less frequently during this period, potentially indicating increased inventory holdings, slower inventory movement, or challenges in sales efficiency. However, a significant reversal occurred in 2023 and 2024, with the ratio rising to approximately 7.00 and 6.95 respectively, approaching and matching the 2020 level. This pattern indicates an improvement in inventory management, likely reflecting better sales performance or inventory control measures.

Receivables Turnover:
Receivables turnover demonstrated a declining trend over the period, from 8.16 in 2020 to 4.44 in 2024. The reduction signifies that the company is collecting its accounts receivable less frequently, taking longer to convert receivables into cash. This could point to more lenient credit policies, worsening collection efficiency, or a shift in customer credit practices that may impact liquidity and cash flow management.

Payables Turnover:
In contrast, the payables turnover ratio increased steadily from 9.73 in 2020 to 12.48 in 2024. The rising ratio indicates the company is settling its payables more rapidly, which could be a strategy to maintain good supplier relationships or could reflect tighter liquidity management. The increase suggests a trend towards paying creditors more quickly, reducing outstanding balances over time.

Working Capital Turnover:
The working capital turnover ratio showed a declining pattern after reaching a peak of 47.00 in 2022, decreasing to 41.82 in 2023 and further down to 18.03 in 2024. The initial high in 2022 indicates efficient use of working capital to generate sales. The subsequent decrease suggests a reduction in this efficiency, potentially due to increased working capital levels, lower sales, or strategic shifts in operations. Notably, the sharp drop in 2024 could signify a more conservative approach to working capital management or operational challenges impacting sales relative to working capital.

Overall Observations:
The activity ratios of Kodiak Gas Services, Inc. reflect a company that experienced periods of reduced operational efficiency in inventory and receivables management but has shown signs of improvement or stabilization in recent years. The increased payables turnover denotes a more aggressive approach to settling obligations, while the decline in working capital turnover suggests a potential slowdown in operational effectiveness or strategic adjustments in working capital deployment. Continuous monitoring of these ratios can provide insights into operational efficiency and liquidity management in future periods.

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Average number of days

The activity ratios of Kodiak Gas Services, Inc. over the specified period reveal several notable trends:

1. Days of Inventory on Hand (DOH):
The company's inventory holding period experienced a significant increase from approximately 51 days at the end of 2020 to a peak of about 99 days in 2022. This indicates that the company took longer to sell its inventory during this period, potentially reflecting increased stock levels, slower inventory turnover, or operational adjustments. However, from 2022 onwards, the DOH markedly decreased to approximately 52 days in 2023 and remained in a similar range in 2024, suggesting improved inventory management and faster inventory turnover in the most recent years.

2. Days of Sales Outstanding (DSO):
The collection period for receivables showed a gradual lengthening trend from around 45 days in 2020 to approximately 52 days in 2022. This indicates a slight slowdown in receivables collections during this period. The trend becomes more pronounced from 2023 through 2024, with DSO increasing substantially to about 56 days in 2023 and over 82 days in 2024. This sharp increase suggests a significant extension in the time it takes to collect payments, potentially impacting liquidity and cash flow.

3. Number of Days of Payables:
The period the company takes to settle its liabilities fluctuated over the period. It was approximately 38 days in 2020, increased substantially to about 65 days in 2021, then decreased to roughly 52 days in 2022. In 2023, payables days decreased further to around 34 days, and continued downward to approximately 29 days in 2024. The recent decline indicates that the company is paying its suppliers more promptly, which could influence relationships with creditors or suppliers and might reflect a shift towards more conservative payment policies.

Summary of Trends:
Between 2020 and 2022, the company experienced increased inventory holding time and slight elongation in receivables collection periods. The period of payable days was relatively more variable but generally increased before decreasing again after 2022. The rise in DSO, particularly sharply in 2024, could be a concern for cash flow management, whereas the reduction in inventory days suggests improved inventory turnover. The decreased payable days in recent years imply a tendency towards paying suppliers faster, which can impact cash reserves. Overall, the activity ratios reflect periods of operational adjustments, with recent trends potentially indicating efforts to optimize inventory and payables management, albeit with increasing challenges in receivables collection.

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Long-term

The long-term activity ratios for Kodiak Gas Services, Inc. indicate a progressive improvement over the period from 2020 through 2024. Specifically, the fixed asset turnover ratio has increased steadily from 0.23 in 2020 to 0.34 in 2024, reflecting enhanced efficiency in utilizing fixed assets to generate revenue. This upward trend suggests that the company has progressively optimized the use of its fixed assets, leading to greater sales per dollar invested in these assets.

Similarly, the total asset turnover ratio has shown a consistent upward movement, starting at 0.16 in 2020 and reaching 0.26 in 2024. This pattern indicates an overall improvement in the company's ability to generate sales from its total assets, encompassing fixed assets, current assets, and other asset categories. The stability of this ratio at the higher end of its range in 2024 suggests sustained asset utilization efficiency.

Overall, the trends in both fixed asset turnover and total asset turnover ratios demonstrate Kodiak Gas Services’ ongoing efforts to increase operational efficiency and asset productivity. The steady growth in these ratios over the analyzed period reflects positive momentum towards more effective asset management, which can contribute to improved profitability and shareholder value in the long term.