MSC Industrial Direct Company Inc (MSM)

Short-term

Turnover ratios

The activity ratios of MSC Industrial Direct Company Inc over the past five years indicate the efficiency of the company in managing its inventory, receivables, payables, and working capital.

1. Inventory turnover: This ratio measures how efficiently the company is managing its inventory by indicating how many times it sells and replaces its inventory within a specific period. The upward trend in inventory turnover from 3.34 in 2022 to 3.88 in 2024 suggests that the company has been effectively managing its inventory levels, resulting in a quicker turnover of goods.

2. Receivables turnover: The receivables turnover ratio reflects how efficient the company is in collecting payments from its customers. The increasing trend in receivables turnover from 5.36 in 2022 to 9.27 in 2024 indicates that MSC Industrial Direct Company Inc has been collecting payments from its customers at a faster pace over the years. This could signify an improvement in the company's credit policies or the effectiveness of its collection process.

3. Payables turnover: Payables turnover ratio demonstrates how quickly the company pays off its suppliers. The declining trend in payables turnover from 16.49 in 2020 to 12.12 in 2024 may suggest that the company is taking longer to pay off its suppliers. This could be due to changing payment terms negotiated with suppliers or a shift in the company's cash flow management.

4. Working capital turnover: This ratio measures how efficiently the company utilizes its working capital to generate sales. The increasing trend in working capital turnover from 3.83 in 2020 to 6.56 in 2024 indicates that MSC Industrial Direct Company Inc has been generating more sales per unit of working capital, reflecting improved efficiency in utilizing its resources to drive revenue.

Overall, the activity ratios suggest that MSC Industrial Direct Company Inc has been effective in managing its inventory, receivables, payables, and working capital, leading to improved operational efficiency and potentially better financial performance.

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Average number of days

To analyze the activity ratios of MSC Industrial Direct Company Inc, we will focus on three key ratios: Days of Inventory on Hand (DOH), Days of Sales Outstanding (DSO), and Number of Days of Payables.

1. Days of Inventory on Hand (DOH):
- The trend shows a decrease in inventory holding efficiency over the past five years, with the current DOH standing at 94.13 days. This implies that, on average, the company holds inventory for around 94 days before sale.
- While there was a slight improvement from the previous year, MSC Industrial Direct could potentially optimize its inventory management further to reduce carrying costs and improve liquidity.

2. Days of Sales Outstanding (DSO):
- The DSO has fluctuated over the years, with the current figure at 39.38 days. This indicates that, on average, it takes around 39 days for the company to collect its accounts receivable.
- The decrease in DSO from the prior year may suggest improved efficiency in collecting sales revenue, but there is still room for further enhancement in receivables management to accelerate cash inflows.

3. Number of Days of Payables:
- The trend in the Number of Days of Payables shows an increase over the period, with the current figure at 30.11 days. This indicates that, on average, the company takes around 30 days to pay its suppliers.
- It is essential to note that paying suppliers later can improve cash flow but may impact relationships with vendors. MSC Industrial Direct may need to strike a balance between extending payables and maintaining good supplier partnerships.

Overall, MSC Industrial Direct Company Inc could benefit from optimizing its inventory management, enhancing receivables collection efficiency, and strategically managing payables to improve working capital management and financial performance.

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Long-term

The fixed asset turnover ratio for MSC Industrial Direct Company Inc has shown a decreasing trend over the past five years, declining from 12.85 in September 2022 to 10.60 in August 2024. This indicates that the company is generating slightly fewer sales revenue per dollar invested in fixed assets.

On the other hand, the total asset turnover ratio has fluctuated over the same period, with a peak of 1.57 in September 2023 and a low of 1.31 in August 2021. Overall, the total asset turnover ratio has remained relatively stable, suggesting that the company has been efficient in generating sales revenue relative to its total assets.

In comparison, the fixed asset turnover ratio is higher than the total asset turnover ratio, indicating that the company is more efficient in utilizing its fixed assets than its total assets to generate sales. This could be due to the nature of the industry in which the company operates and its capital-intensive operations.

Overall, the analysis of MSC Industrial Direct Company Inc's long-term activity ratios suggests that the company has been effective in generating sales revenue in relation to its assets, albeit with a slight decline in the efficiency of utilizing its fixed assets for revenue generation.