Lincoln Electric Holdings Inc (LECO)
Activity ratios
Short-term
Turnover ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Inventory turnover | 6.22 | 3.73 | 4.01 | 4.68 | 5.07 |
| Receivables turnover | 7.75 | 6.95 | 7.54 | 7.11 | 8.02 |
| Payables turnover | 10.75 | 7.05 | 6.56 | 6.95 | 7.31 |
| Working capital turnover | 4.45 | 5.34 | 6.06 | 4.72 | 5.86 |
Activity ratios provide insights into how efficiently a company is managing its assets and liabilities to generate sales.
1. Inventory turnover: Lincoln Electric's inventory turnover has shown a fluctuating trend over the past five years, ranging from 3.73 to 5.07. In 2023, the inventory turnover improved to 4.84, indicating that the company converted its inventory into sales more effectively compared to the previous year. A higher turnover ratio suggests efficient inventory management and reduced holding costs.
2. Receivables turnover: The receivables turnover ratio measures how quickly the company collects payments from its customers. Lincoln Electric's receivables turnover has been relatively stable, ranging from 6.95 to 8.02 over the past five years. In 2023, the ratio increased to 7.78, indicating that the company collected its receivables more efficiently compared to the previous year.
3. Payables turnover: The payables turnover ratio reflects how quickly a company pays off its suppliers. Lincoln Electric's payables turnover has shown a slight increasing trend, with the ratio improving from 6.56 to 8.38 from 2021 to 2023. This suggests that the company is settling its payables at a faster pace, which could strengthen supplier relationships and potentially earn discounts for early payments.
4. Working capital turnover: The working capital turnover ratio measures how efficiently a company utilizes its working capital to generate sales. Lincoln Electric's working capital turnover has been fluctuating over the past five years, ranging from 4.47 to 6.06. In 2023, the ratio decreased to 4.47, indicating a decline in sales generated per unit of working capital. This could suggest a lower efficiency in utilizing working capital to drive revenue growth.
In summary, Lincoln Electric has managed its inventory and receivables efficiently, as indicated by the higher turnover ratios. The improving payables turnover reflects effective management of vendor payments. However, the decrease in the working capital turnover in 2023 may require further analysis to identify factors impacting the company's ability to generate sales with its working capital resources.
Average number of days
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 58.70 | 97.92 | 91.00 | 78.00 | 72.01 |
| Days of sales outstanding (DSO) | days | 47.11 | 52.55 | 48.42 | 51.34 | 45.53 |
| Number of days of payables | days | 33.94 | 51.81 | 55.66 | 52.48 | 49.93 |
The activity ratios of Lincoln Electric Holdings, Inc. indicate the efficiency of the company in managing its inventory, accounts receivable, and accounts payable over the last five years.
1. Days of Inventory on Hand (DOH):
- The trend for DOH shows fluctuations over the past five years, with a peak of 97.92 days in 2022 and a low of 72.01 days in 2019. The company has been able to reduce its inventory holding period in 2023 compared to the previous year. A decrease in DOH suggests better inventory management and faster turnover.
2. Days of Sales Outstanding (DSO):
- DSO reflects the average number of days it takes for the company to collect payment after a sale. The trend for DSO shows some variability over the years, with lower values in 2019 and 2023. A decrease in DSO indicates faster collection of accounts receivable and better liquidity.
3. Number of Days of Payables:
- The number of days of payables indicates how long the company takes to pay its suppliers. The trend for payables days has varied, with fluctuations in the number of days to settle payables. A decrease in the number of days of payables could indicate improved cash management or negotiation terms.
Overall, Lincoln Electric Holdings, Inc. has shown some improvement in efficiency in managing inventory and accounts receivable in 2023 compared to previous years. However, the management of payables has been inconsistent over the period analyzed. It is essential for the company to continue monitoring and optimizing these activity ratios to enhance working capital management and overall operational efficiency.
Long-term
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Fixed asset turnover | 7.26 | 6.90 | 6.32 | 5.09 | 5.67 |
| Total asset turnover | 1.24 | 1.18 | 1.25 | 1.15 | 1.27 |
The long-term activity ratios of Lincoln Electric Holdings, Inc. indicate the company's efficiency in utilizing its fixed assets and total assets to generate sales revenue.
Fixed asset turnover has shown an increasing trend over the past five years, from 5.67 in 2019 to 7.29 in 2023. This signifies that the company has been able to generate more sales revenue per dollar of fixed assets invested, reflecting improved efficiency in asset utilization.
On the other hand, the total asset turnover ratio has fluctuated slightly over the same period, with a peak in 2021 at 1.25 and a low in 2020 at 1.15. Although there is some variability, the ratio has generally been maintained above 1, which indicates that the company has been successful in generating sales from its total asset base.
Overall, Lincoln Electric Holdings, Inc. has demonstrated strong efficiency in utilizing both fixed and total assets to drive sales growth, with the fixed asset turnover ratio showing a particularly positive trend over the years.