Microchip Technology Inc (MCHP)

Activity ratios

Short-term

Turnover ratios

	Mar 31, 2024	Mar 31, 2023	Mar 31, 2022	Mar 31, 2021	Mar 31, 2020
Inventory turnover	2.01	2.07	2.78	3.10	2.96
Receivables turnover	6.68	6.46	6.36	5.45	5.65
Payables turnover	12.39	6.91	6.88	7.04	8.23
Working capital turnover	15.47	—	6.47	—	9.10

Inventory turnover measures how efficiently a company manages its inventory by determining how many times it sells and replaces its inventory during a specific period. From 2020 to 2024, Microchip Technology Inc's inventory turnover ratio has fluctuated, decreasing from 3.10 in 2021 to 2.01 in 2024. This suggests a decline in the efficiency of inventory management.

Receivables turnover reflects how quickly a company collects cash from its credit sales. Microchip's receivables turnover ratio has shown a relatively stable trend, fluctuating between 5.45 in 2021 to 6.68 in 2024. A higher ratio indicates faster collection of receivables, which is positive for the company.

Payables turnover measures how quickly a company pays its suppliers. Microchip's payables turnover ratio has varied significantly, with a notable increase from 6.91 in 2023 to 12.39 in 2024. This suggests that the company is taking longer to pay its suppliers, potentially improving its cash flow position.

Working capital turnover ratio shows the efficiency of a company in utilizing its working capital to generate sales. Microchip's working capital turnover has shown irregular values over the years, with a sharp increase to 15.47 in 2024 from 9.10 in 2020. A higher working capital turnover indicates better utilization of working capital in generating sales revenue.

Overall, Microchip Technology Inc's activity ratios display mixed trends, with fluctuations in inventory turnover and improvement in payables turnover. However, the stable receivables turnover and increasing working capital turnover suggest the company's efficient management of receivables and working capital in recent years.

Average number of days

		Mar 31, 2024	Mar 31, 2023	Mar 31, 2022	Mar 31, 2021	Mar 31, 2020
Days of inventory on hand (DOH)	days	182.04	176.44	131.51	117.85	123.16
Days of sales outstanding (DSO)	days	54.68	56.46	57.40	66.96	64.64
Number of days of payables	days	29.46	52.86	53.06	51.82	44.33

Microchip Technology Inc's activity ratios show the efficiency of the company in managing its inventory, receivables, and payables.

The Days of Inventory on Hand (DOH) has been increasing steadily from 123.16 days in 2020 to 182.04 days in 2024. This indicates that Microchip is holding onto its inventory for a longer period, which may suggest overstocking or slowing sales.

The Days of Sales Outstanding (DSO) have fluctuated over the years but have generally decreased from 64.64 days in 2020 to 54.68 days in 2024. A lower DSO signifies that the company is collecting its receivables faster, improving cash flow and liquidity.

The Number of Days of Payables has also fluctuated, with a notable decrease in 2024 compared to 2023. Microchip has been managing its payables effectively by extending the time it takes to pay suppliers, which can positively impact cash flow.

Overall, Microchip Technology Inc should further assess its inventory management to reduce the days it takes to sell its inventory and optimize working capital. Additionally, the company's effective management of receivables and payables contributes to improved liquidity and financial stability.

Long-term

	Mar 31, 2024	Mar 31, 2023	Mar 31, 2022	Mar 31, 2021	Mar 31, 2020
Fixed asset turnover	6.39	7.16	7.05	6.36	6.02
Total asset turnover	0.48	0.52	0.42	0.33	0.30

Long-term activity ratios provide insights into how efficiently a company is utilizing its long-term assets to generate revenue. In the case of Microchip Technology Inc, the fixed asset turnover ratio has shown a decreasing trend over the past five years, indicating a decline in the company's ability to generate sales from its fixed assets. Despite the fluctuations, the ratio has generally remained relatively high, which suggests that the company is effectively utilizing its fixed assets to generate revenue.

On the other hand, the total asset turnover ratio has depicted a fluctuating pattern, but it has generally been on an upward trend. This improvement implies that Microchip Technology Inc has been able to generate more sales relative to its total assets over the years. The significant increase in the total asset turnover ratio from 0.30 in 2020 to 0.48 in 2024 indicates a notable improvement in the company's overall asset efficiency.

Overall, the long-term activity ratios suggest that Microchip Technology Inc has been efficient in utilizing its assets to drive revenue growth, especially in terms of total assets, even though there has been a slight decline in the fixed asset turnover ratio. It is important for the company to monitor these ratios over time to ensure continued efficiency in utilizing its assets to drive sales and profitability.