Kratos Defense & Security Solutions (KTOS)

Short-term

Turnover ratios

The activity ratios for Kratos Defense & Security Solutions over the period from December 31, 2020, to December 31, 2024, reflect notable trends in inventory management, receivables efficiency, payables behavior, and overall working capital utilization.

Inventory Turnover:
The inventory turnover ratio has generally declined over the period, decreasing from 6.71 in 2020 to a low of 4.92 in 2023 before marginally increasing to 5.24 in 2024. This downward trend indicates a lengthening of the average duration inventory remains on hand, suggesting potential accumulation of inventory or a slowdown in inventory turnover efficiency. The slight rebound in 2024 may point to adjustments in inventory management or shifts in production and sales cycles.

Receivables Turnover:
Receivables turnover ratios exhibited a modest upward trend, rising from 2.75 in 2020 to 3.51 in 2024. This improvement suggests that Kratos has been increasingly effective in collecting receivables, reducing the average number of days it takes to convert receivables into cash, which may enhance cash flow management and liquidity.

Payables Turnover:
The payables turnover ratio shows variability but an overall increasing pattern, moving from 9.83 in 2020 to a peak of 12.18 in 2023 before decreasing to 10.35 in 2024. Elevated payables turnover indicates faster payment cycles to suppliers, which could reflect improved payment efficiencies or strategic payment timing. The decline in 2024 may signal a slight relaxation in payment speed or a strategic change in managing supplier relationships.

Working Capital Turnover:
The working capital turnover ratio demonstrated significant growth from 1.32 in 2020 to a peak of 3.44 in 2023, followed by a decline to 1.97 in 2024. The increase over 2020–2023 suggests more efficient utilization of working capital to generate sales, possibly reflecting enhanced operational efficiencies. The subsequent decrease in 2024 indicates a potential easing in working capital utilization or increased investment in inventory or receivables, reducing immediate efficiency metrics.

Summary:
Overall, Kratos' activity ratios reveal a pattern of decreasing inventory turnover coupled with improving receivables and payables management. These dynamics suggest shifts in operational efficiency, inventory practices, and cash flow management. The fluctuations in working capital turnover hint at changing operational strategies or market conditions influencing how effectively the company deploys its working capital to support sales activities.

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Average number of days

The activity ratios for Kratos Defense & Security Solutions, comprising days of inventory on hand (DOH), days of sales outstanding (DSO), and days of payables, exhibit notable trends over the period from December 31, 2020, to December 31, 2024.

Inventory Days on Hand (DOH):
The DOH has generally increased over the observed period. Starting at 54.43 days in 2020, it gradually rose to 57.08 days in 2021, then to 68.14 days in 2022. This upward trend continued into 2023, reaching 74.19 days, before slightly declining to 69.68 days in 2024. The overall increase in inventory holding periods suggests that the company has been accumulating inventory for longer durations, which could be indicative of slower inventory turnover or adjustments in procurement and production strategies.

Days of Sales Outstanding (DSO):
The DSO metric shows a decreasing trend across the years. From 132.93 days in 2020, it decreased slightly to 128.05 days in 2021. It then increased marginally to 133.48 days in 2022, implying a period of slower receivables collection. However, there is a significant improvement in subsequent years, with DSO declining to 115.86 days in 2023 and further to 104.01 days in 2024. This decline indicates an improvement in receivables collection efficiency, leading to faster cash conversion from sales.

Days of Payables:
The days of payables remained relatively stable, fluctuating modestly within the range of approximately 31 to 37 days. In 2020, payables days stood at 37.14 days, decreasing to 31.37 days in 2021 and slightly to 31.11 days in 2022. There was a marginal decrease to 29.97 days in 2023, followed by an increase to 35.25 days in 2024. The variation suggests a relatively consistent approach to payments to suppliers, with slight fluctuations possibly reflecting changes in payment terms or negotiations.

Summary:
Overall, Kratos’ activity ratios indicate a trend of increasing inventory holding periods, reflecting potential shifts in inventory management or product mix. The notable improvement in receivables collection (declining DSO) suggests enhanced efficiency in managing customer payments. Meanwhile, the stability in payables days points to consistent supplier relationships and payment practices. These trends together portray a company adjusting its operational cycle, balancing inventory levels with receivables management, and maintaining stable supplier relations.

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Long-term

The analysis of Kratos Defense & Security Solutions’ long-term activity ratios reveals several notable trends over the periods evaluated. The fixed asset turnover ratio has exhibited a declining pattern, decreasing from 4.00 as of December 31, 2020, to 3.92 in 2021, and further down to 3.45 in 2022. The absence of data for December 31, 2023, and 2024 precludes a comprehensive assessment beyond 2022. This downward trend indicates a diminishing efficiency in utilizing fixed assets to generate revenue, which could suggest either an increase in fixed assets without a commensurate rise in sales or a shift in business operations affecting asset productivity.

Conversely, the total asset turnover ratio has demonstrated a gradual improvement over the same period. It increased from 0.48 in 2020 to 0.51 in 2021, then to 0.58 in 2022, and continued upward to 0.64 in 2023 before experiencing a slight decrease to 0.58 in 2024. The upward movement from 2020 to 2023 suggests enhanced overall asset utilization efficiency, indicating that the company has been able to generate more sales per dollar of total assets over time. The slight decline in 2024 may reflect some operational adjustments or changes in asset deployment, but overall, the trend points to improvements in asset efficiency.

In summary, while fixed asset efficiency has declined, total asset efficiency has improved during the periods analyzed. This divergence may imply that the company's investments in fixed assets have become less productive, but improvements in other asset categories or operational areas have compensated, resulting in better total asset utilization. The overall trend indicates a complex picture of asset management, with increasing efficiency at the total asset level despite decreasing fixed asset productivity.