Mercury Systems Inc (MRCY)

Short-term

Turnover ratios

The analysis of Mercury Systems Inc.’s activity ratios over the specified period indicates evolving operational efficiency and liquidity management.

Inventory Turnover:
The inventory turnover ratio experienced a general downward trend from a high of 2.43 as of June 30, 2021, to a low of 1.76 as of September 30, 2023, suggesting a decline in inventory management efficiency or an increase in inventory holdings relative to sales. After reaching this low point, the ratio somewhat recovered, reaching 1.94 by June 30, 2025, indicating incremental improvements in turning over inventory in recent periods. A decline in inventory turnover may reflect increased inventory levels or decreased sales velocity.

Receivables Turnover:
The receivables turnover ratio demonstrated a decreasing trend from 3.97 on September 30, 2020, to approximately 2.00-2.37 across the following periods, suggesting a lengthening of the receivables collection period. This signals that the company has, over time, taken longer to collect receivables, potentially impacting cash flow. Notably, some recovery is observed in late 2024 and mid-2025, with ratios reaching around 2.31 to 2.37, implying gradual improvement in receivables management.

Payables Turnover:
The payables turnover ratio has shown considerable variability, starting at 7.27 in September 2020, with fluctuations reaching as high as 11.24 in June 2021, and then generally trending upward after a low of 5.68 in September 2022. The ratio has increased to values around 8.13 to 10.33 in late 2024 and mid-2025, indicating an extension in the period taken to pay suppliers. This suggests the company may be strategically delaying payments to optimize cash flow, balancing supplier relations with liquidity needs.

Working Capital Turnover:
The working capital turnover ratio has decreased from 1.56 in September 2020 to approximately 1.18-1.23 in late 2024 and mid-2025. This decline points to a reduction in the utilization of working capital to generate sales, which could reflect a slowdown in operational activity or a deliberate conservative approach to working capital management.

Overall Summary:
The activity ratios collectively reveal a trend of declining efficiency in inventory and receivables management over the analyzed period, coupled with increased leverage in managing payables. While recent periods show some stabilization and slight improvements, the ratios suggest that Mercury Systems Inc. has been consolidating its working capital in response to broader operational or market conditions. These trends should be monitored in conjunction with other financial metrics for a comprehensive assessment of operational health.

---

Average number of days

The data reflects Mercury Systems Inc.'s activity ratios over a period spanning from September 2020 to June 2025, focusing on days of inventory on hand (DOH), days of sales outstanding (DSO), and days of payables.

Days of Inventory on Hand (DOH):
The company's inventory holding period increased steadily, suggesting a trend toward higher inventory levels relative to sales. Starting at approximately 164 days in September 2020, DOH rose gradually over the period, reaching nearly 198 days by December 2023, and then fluctuating slightly before settling near 188 days in June 2025. This increase indicates that inventory is taking longer to clear, potentially tying up more capital and possibly reflecting adjustments in inventory management strategies, product mix, or supply chain considerations.

Days of Sales Outstanding (DSO):
The receivables collection period lengthened from approximately 92 days in September 2020 to a peak around 190 days in June 2023, indicating that the company took longer to collect receivables over time. Subsequently, there was a notable decrease, with DSO declining to approximately 154 days by March 2025. The initial elongation may reflect changes in credit policies, customer payment behaviors, or shifts in the company's customer base. The later reduction suggests an improved receivables collection process or tighter credit controls, which enhance cash flow effectiveness.

Days of Payables:
The number of days the company takes to pay its suppliers displayed some variability but generally trended upward from about 50 days in September 2020 to a high of approximately 64 days in September 2022. Thereafter, the period decreased to about 35 days by December 2024 before slightly increasing again to roughly 44 days in March 2025. These fluctuations indicate the company's changing approach to managing payables, perhaps stretching payments during certain periods to conserve cash and then moving towards earlier payments to improve supplier relationships or due to contractual changes.

Overall Assessment:
Mercury Systems Inc. experienced a progressive increase in inventory and receivables periods for most of the analyzed period, suggesting a possible shift toward longer operational cycles or inventory and credit extension strategies. The management of payables has shown periods of extended payment terms, contributing to potential cash flow flexibility. The recent reduction in DSO points toward improved collection efficiency, which may enhance liquidity position. The combination of these activity ratios reflects ongoing adjustments in operational cycle management, with implications for working capital and overall operational efficiency.

---

Long-term

The analysis of Mercury Systems Inc.'s long-term activity ratios, based on the provided data, reveals the following trends and insights:

Fixed Asset Turnover Ratio:
This ratio measures the company’s efficiency in utilizing its fixed assets to generate sales. The data indicates fluctuations over the periods observed. The ratio increased significantly from 5.26 as of September 30, 2020, reaching a peak of 8.46 by March 31, 2023. The notable upward trend suggests improvements in asset utilization efficiency, potentially reflecting effective asset management or increased sales relative to fixed assets during this period. After reaching this peak, the ratio declined slightly to 8.15 as of June 30, 2023, before data becomes unavailable.

Total Asset Turnover Ratio:
This ratio assesses the overall efficiency in using total assets to generate sales. The ratio shows a gradual declining trend from 0.50 on September 30, 2020, to around 0.37 in the subsequent periods, with minor fluctuations. The steady decrease indicates a declining efficiency in asset utilization over time, possibly attributable to increased asset base, investment in non-productive assets, or other operational factors affecting sales generation relative to total assets.

Overall Interpretation:
The significant increase in fixed asset turnover through 2023 suggests that Mercury Systems Inc. improved its utilization of fixed assets for generating sales during this period. Conversely, the steady decline in the total asset turnover ratio implies a broader trend of decreasing overall asset efficiency in generating revenue. This could reflect strategic shifts such as asset expansion or capital investments that have yet to translate into proportional sales growth, or changes in operational efficiency. The divergence between these ratios may warrant further investigation into asset composition and operational strategies to comprehensively understand the changes in asset utilization efficiency.