Neogen Corporation (NEOG)

Short-term

Turnover ratios

The activity ratios of Neogen Corporation demonstrate a nuanced view of operational efficiency over the period.

Inventory Turnover: The ratio exhibits a general upward trend, increasing from 2.33 as of August 2020 to a peak of 3.26 in November 2023. This indicates an improvement in inventory management, with inventories being sold and replaced more frequently over time. The ratio's fluctuation suggests periods of varying inventory liquidity, but the overall trajectory reflects a strengthening in inventory turnover efficiency.

Receivables Turnover: Initially relatively stable around 5.4 to 5.5 in 2020 and early 2021, the ratio significantly improves during 2023, reaching a peak of approximately 6.68 in August 2023. This suggests an enhancement in receivables collection efficiency, with the company collecting outstanding receivables more rapidly. Post-peak, the ratio stabilizes around 5.5 to 6.1, indicating maintenance of an efficient receivables management system.

Payables Turnover: The ratio demonstrates considerable variability, with notable dips and rises. It fluctuated from highs of 11.72 in August 2021 and 11.84 in February 2022 to lows of 4.05 in November 2023. Elevated ratios imply shorter periods to settle payables, while decreases suggest extended payment practices. The fluctuations reflect periods of stricter supplier payment cycles and times of extended credit.

Working Capital Turnover: This ratio shows a consistent upward trend, rising from approximately 0.84 in August 2020 to over 2.2 by May 2025. The steady increase indicates improved utilization of working capital to generate sales, reflecting more efficient operational management and possibly a strategic focus on optimizing current asset and liability management.

Summary: Overall, Neogen Corporation's activity ratios depict a trajectory of increasing operational efficiency. Inventory and receivables turnovers have improved markedly, indicating better inventory and receivables management. The working capital turnover's continuous rise further supports this view, suggesting effective utilization of assets to generate sales. Variability in payables turnover indicates a more dynamic approach to managing payables, possibly aligning with supplier terms and capital management strategies. These ratios collectively point to a company actively improving operational performance and financial management efficiency over the observed period.

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Average number of days

The activity ratios of Neogen Corporation, as reflected through its days of inventory on hand (DOH), days sales outstanding (DSO), and days of payables, demonstrate fluctuations over the specified periods, indicating changes in operational efficiency and working capital management.

Days of Inventory on Hand (DOH):
The DOH decreased from 156.42 days as of August 31, 2020, to a low of approximately 111.97 days as of August 31, 2023, signifying an improvement in inventory management and faster inventory turnover during this period. Notably, this ratio spiked to 164.72 days on August 31, 2022, before trending downward again, reaching its lowest at 111.97 days in August 2023. From there, it increased once more, reaching around 161.61 days by February 28, 2025. This pattern suggests periods of enhanced inventory efficiency followed by expansions, possibly due to product mix changes or supply chain factors.

Days of Sales Outstanding (DSO):
The DSO exhibits relative stability with some fluctuations, predominantly remaining in the 54 to 74 days range over most periods, indicating consistent receivables collection efficiency. A notable deviation occurred on November 30, 2022, when the DSO surged to 82.59 days, implying slower collection processes during that interval. Prior to this spike, the DSO had been decreasing, reaching a low of 54.67 days on August 31, 2023, which signifies improved collection efficiency. Afterward, the DSO stabilized around 62 to 68 days through the subsequent periods, suggesting relatively consistent receivables management in recent times.

Days of Payables:
The number of days of payables has experienced notable variability, ranging from approximately 30 days to over 90 days. The shortest payables period was 30.83 days on February 28, 2022, indicative of quicker payments to suppliers, potentially to improve supply chain relationships or reduce liabilities. On the other hand, the peak of 90.19 days on November 30, 2023, indicates extended payment periods, possibly reflecting strategic cash management or supplier credit terms. The recent trend shows periods of both extension and contraction, with payables stabilizing around 56 to 71 days in the later periods.

Overall Summary:
The activity ratios reveal that Neogen Corporation has generally maintained stable receivables turnover, with periods of improved collection efficiency. Inventory management has seen significant fluctuations, with periods of rapid turnover followed by accumulation, which could be linked to operational adjustments or supply chain dynamics. The payables activity ratio fluctuates considerably, aligning with periods of strategic payment extensions or accelerations. Collectively, these indicators suggest ongoing efforts to optimize working capital, manage operational efficiencies, and adapt to changing market circumstances over the examined periods.

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Long-term

The long-term activity ratios for Neogen Corporation provide insight into the efficiency of asset utilization over time. The Fixed Asset Turnover ratio exhibits a general downward trend from its peak of 5.17 at August 31, 2020, declining to 3.90 by August 31, 2023. This indicates that, relative to fixed assets, revenue generation has decreased over this period, potentially reflecting increased investment in fixed assets, changes in asset utilization efficiency, or shifts in business operations. The steady decline suggests a retention of fixed assets with less proportional revenue growth, which could imply capital expansion not immediately translating into higher sales, or a strategic shift towards asset-heavy activities.

Meanwhile, the Total Asset Turnover ratio remained relatively stable at approximately 0.51 to 0.54 from August 2020 through August 2022, indicating consistent overall efficiency in utilizing total assets to generate sales during this period. However, a significant drop is observed around November 2022, where the ratio sharply declined from 0.54 to 0.14, suggesting a substantial increase in total assets not matched by revenue growth. Beginning in early 2023, the ratio begins to recover gradually, reaching 0.26 by May 2025, indicating a partial improvement in asset utilization efficiency.

Overall, Neogen's fixed asset turnover reveals a diminishing efficiency in converting fixed assets into revenue over time, whereas the total asset turnover shows a period of stability followed by a notable decline and subsequent recovery. These trends may reflect strategic investments, asset expansions, or operational adjustments impacting asset productivity. Continuous monitoring would be necessary to determine if these fluctuations are temporary or indicative of long-term changes in operational efficiency.