Kratos Defense & Security Solutions (KTOS)

Short-term

Turnover ratios

The activity ratios for Kratos Defense & Security Solutions, based on the provided data, reflect certain trends across inventory turnover, receivables turnover, payables turnover, and working capital turnover, offering insights into the company's operational efficiency over the specified periods.

Inventory Turnover:
The inventory turnover ratio indicates how frequently inventory is sold and replaced within a period. The data shows a decline from 7.77 times on June 30, 2020, to a low of approximately 5.00–5.45 times during mid to late 2024, before slightly increasing again to 5.45 on June 30, 2024. This downward trend suggests a gradual elongation in inventory holding periods, potentially indicating slower inventory turnover or increased inventory levels, which could be a result of supply chain delays, strategic stockpiling, or shifts in product demand. The recent slight uptick may point toward some recovery or efforts to improve inventory management.

Receivables Turnover:
Receivables turnover measures how quickly the company collects its accounts receivable. The ratio exhibits relative steadiness, with values fluctuating slightly around 2.63–3.53 times. The ratio increased modestly from about 2.88 in June 2020 to a peak of 3.53 in September 2024, indicating an improvement in receivables collection efficiency. This slight upward trend suggests that the company has been able to recover receivables at a somewhat faster rate in recent periods, possibly reflecting enhanced credit management or tighter collection policies.

Payables Turnover:
The payables turnover ratio illustrates how rapidly the company settles its accounts payable. The ratio shows variability but generally remains high, with values ranging from 9.67 to 14.34 times. Notably, the ratio peaks at 14.34 in June 2024, indicating quicker payment of payables during this period, which could suggest improved liquidity or a strategic decision to settle obligations more promptly. Conversely, the ratio declined to approximately 10.41 in December 2024, possibly reflecting changes in payment policies or cash flow considerations.

Working Capital Turnover:
Working capital turnover assesses how efficiently the company uses its net working capital to generate sales. The ratio displays an overall upward trend, starting from 1.23 on June 30, 2020, and rising to a peak of approximately 3.44 in December 2023, before falling slightly to 2.08 by March 2025. This trend indicates increasing efficiency in utilizing working capital to support sales over the years, with notable acceleration up to late 2023. The subsequent decrease could suggest increased working capital levels or changing operational strategies.

In summary, Kratos Defense & Security Solutions exhibits a pattern of decreasing inventory turnover alongside steady receivables collection, rising payables turnover in recent periods, and improving working capital efficiency until late 2023, followed by some reduction. These trends may reflect adaptations in inventory management, credit and payment policies, and overall operational efficiencies, which are vital to understanding the company's operational health and financial agility.

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Average number of days

The analysis of Kratos Defense & Security Solutions’ activity ratios over the period from June 2020 through March 2025 reveals several trends regarding inventory management, receivables collection, and payable policies.

Days of Inventory on Hand (DOH):
The DOH ratio indicates the company’s efficiency in managing inventory levels. Starting at approximately 47 days in June 2020, there is a consistent upward trend throughout the period, culminating at nearly 73 days in March 2025. This signifies a significant increase in inventory holding periods, reflecting either strategic inventory buildup, inventory obsolescence concerns, or adjustments in supply chain practices. The steady rise, particularly notable after June 2021, suggests a deliberate accumulation of inventory possibly due to contract cycles or forecasting adjustments, which could impact working capital but may also serve to mitigate future supply chain disruptions.

Days of Sales Outstanding (DSO):
The DSO metric demonstrates fluctuations in receivables collection efficiency. Initially high at approximately 127 days in June 2020, the DSO exhibits some volatility but generally declines towards the end of the period. Notably, by December 2023, DSO drops to about 116 days, with further reductions observed in 2024, reaching approximately 104 days by September 2024. However, a slight uptick is seen afterward, rising marginally to over 114 days in March 2025. The overall trend indicates improved collection efficiency over time, particularly in the latter half of 2023 and 2024, potentially reflecting tighter credit policies or more efficient receivables management.

Number of Days of Payables:
The payable days show variability but overall suggest a moderate management of payment obligations. Early in the period, payables ranged around 31–37 days, with a noticeable decrease to roughly 25 days in mid-2024, indicating prompt payment practices or possibly earlier settlement of liabilities. The figure then increases slightly to above 34 days in March 2025. This suggests a relatively active management of trade payables, balancing the need to maintain supplier relationships with cash flow considerations.

Overall Interpretation:
The activity ratio analysis illustrates a company increasingly holding higher inventory levels while simultaneously improving receivables collection efficiency in recent years. The elongation in inventory days could imply strategic stockpiling, possibly to support production cycles or defense contract schedules. The reduction in DSO indicates enhanced credit collection processes, which can improve cash flow despite higher inventories. Manageably short payable periods point toward prudent management of liabilities to sustain liquidity.

The combined trends suggest an organization optimizing its operational cycle with a focus on strengthening supply chain resilience and receivables management, although increased inventory levels warrant attention to inventory turnover efficiency and potential impacts on working capital.

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Long-term

The analysis of Kratos Defense & Security Solutions’ long-term activity ratios over the given periods reveals the following trends:

Fixed Asset Turnover: This ratio exhibits a declining trend from June 30, 2020, through September 30, 2022. Specifically, it decreases from approximately 4.42 in June 2020 to about 3.32 by September 2022. This decline indicates that the company's efficiency in generating sales from its fixed assets has diminished over this period. After September 2022, the ratio stabilizes somewhat, reaching around 3.45 at the end of 2022 and slightly increasing to 3.59 in March 2023, before a modest rise to 3.62 by June 2023. The ratio data for subsequent quarters are unavailable. The stabilization and slight increase post-2022 may suggest efforts to improve fixed asset utilization or changes in asset base efficiency.

Total Asset Turnover: This ratio demonstrates a consistent upward trajectory over the analyzed timeframe. Starting at approximately 0.50 on June 30, 2020, it steadily increases to around 0.64 by December 2022 and maintains this level into 2023, with slight fluctuations. Notably, it reaches 0.64 towards the end of 2023 before declining slightly to 0.58 in the first quarter of 2024. The elevated and relatively stable levels of total asset turnover suggest improved overall efficiency in using total assets to generate sales. The slight decline after December 2023 might reflect some challenges or changes in asset utilization efficiency during that period.

Overall Interpretation: The company’s fixed asset turnover ratio indicates a decreasing efficiency in utilizing long-term fixed assets to generate sales during the initial periods, followed by a stabilization phase. Conversely, the total asset turnover ratio points to a sustained improvement in overall asset utilization efficiency over time. The divergence between these two ratios suggests that while fixed asset efficiency has experienced some contraction, overall asset management and operational efficiency have improved or remained stable, possibly due to better utilization of other asset classes or operational adjustments.