Stepan Company (SCL)

Short-term

Turnover ratios

The activity ratios for Stepan Co. provide insight into the efficiency of the company's operations and management of its resources.

1. Inventory turnover: Stepan Co. has shown a consistent improvement in its inventory turnover ratio over the quarters, indicating that the company is selling its inventory at a faster rate. This can be seen as a positive trend, as higher inventory turnover typically suggests strong sales performance and effective inventory management.

2. Receivables turnover: The receivables turnover ratio has fluctuated over the quarters but has generally remained within a moderate range. A higher receivables turnover ratio indicates that the company is efficient in collecting payments from its customers, which is crucial for maintaining healthy cash flow.

3. Payables turnover: Stepan Co. has shown a steady improvement in its payables turnover ratio, suggesting that the company is managing its payables effectively. A higher payables turnover ratio indicates that the company is paying its suppliers in a timely manner, which can help maintain good relationships with vendors.

4. Working capital turnover: The working capital turnover ratio has also shown a positive trend over the quarters, indicating that Stepan Co. is effectively utilizing its working capital to generate sales. A higher working capital turnover ratio indicates efficient management of working capital, which is key to sustaining business operations.

Overall, based on the analysis of these activity ratios, Stepan Co. appears to be effectively managing its inventory, receivables, payables, and working capital, which is essential for maintaining operational efficiency and financial health.

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Average number of days

To analyze Stepan Co.'s activity ratios, we will focus on three key metrics: Days of Inventory on Hand (DOH), Days of Sales Outstanding (DSO), and Number of Days of Payables.

1. Days of Inventory on Hand (DOH):
- Stepan Co.'s DOH has generally decreased over the quarters in 2023, indicating an improvement in inventory management efficiency. The company held inventory for 47.32 days in Q4 2023, compared to 62.62 days in Q4 2022.
- This downward trend suggests that Stepan Co. may be managing its inventory levels more effectively, potentially reducing carrying costs and the risk of obsolescence.

2. Days of Sales Outstanding (DSO):
- DSO represents how long it takes for the company to collect revenue after a sale is made. Stepan Co.'s DSO has fluctuated over the quarters, with a peak at 74.14 days in Q1 2022.
- In Q4 2023, the company's DSO was 66.24 days, indicating that it takes approximately 66 days to collect revenue from customers. A decreasing trend in DSO suggests more efficient credit and collection practices.

3. Number of Days of Payables:
- The number of days of payables metric shows how long the company takes to pay its vendors. Stepan Co.'s payable days have varied but have generally decreased in 2023 compared to 2022.
- In Q4 2023, the company took 41.53 days to pay its bills. A lower number of days of payables could indicate improved liquidity management, but it may also suggest strong negotiation power with suppliers.

Overall, the trend in these activity ratios for Stepan Co. in 2023 indicates improving efficiency in managing inventory, collecting receivables, and paying suppliers. This suggests that the company is effectively managing its working capital cycle, which is crucial for maintaining financial health and sustainability. It is essential for investors and stakeholders to monitor these activity ratios to assess the company's operational performance and financial management effectively.

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Long-term

Stepan Co.'s long-term activity ratios, specifically the fixed asset turnover and total asset turnover, provide insight into the efficiency of the company's utilization of its assets to generate sales.

Fixed asset turnover has exhibited a declining trend over the past eight quarters, decreasing from 2.58 in Q4 2022 to 1.93 in Q4 2023. This indicates that Stepan Co. generated $1.93 in sales for every dollar of fixed assets in the most recent quarter, down from $2.58 in the same quarter the previous year. The decreasing trend suggests that the company may be experiencing challenges in efficiently utilizing its fixed assets to generate revenue. It is important for the company to monitor this ratio to ensure that its investments in fixed assets are yielding optimal returns.

On the other hand, the total asset turnover ratio has also shown a downward trend, declining from 1.14 in Q4 2022 to 0.98 in Q4 2023. This indicates that Stepan Co. generated $0.98 in sales for every dollar of total assets in the most recent quarter, down from $1.14 in the same quarter the previous year. The decreasing trend suggests that the company may be facing challenges in effectively managing its total asset base to generate revenue. Stepan Co. should analyze the underlying factors contributing to this decline and take necessary steps to improve the efficiency of its asset utilization.

Overall, the declining trends in both fixed asset turnover and total asset turnover ratios suggest that Stepan Co. may be facing challenges in efficiently utilizing its assets to drive sales. It is essential for the company to closely monitor these ratios and implement strategic measures to enhance asset efficiency and improve overall operational performance.