Shake Shack Inc (SHAK)

Short-term

Turnover ratios

Shake Shack Inc's inventory turnover has been consistently high over the years, indicating that the company efficiently manages its inventory by quickly selling and replenishing stock. This may reflect effective demand forecasting and supply chain management.

The receivables turnover ratio has remained relatively stable, suggesting that Shake Shack collects its accounts receivable in a timely manner. This indicates effective credit policies and strong customer payment practices.

The payables turnover ratio has shown an increasing trend over the years, which could imply that Shake Shack is taking longer to pay its suppliers. While this may indicate liquidity challenges, it can also imply improving bargaining power with suppliers or extended payment terms.

The working capital turnover ratio has generally increased, highlighting the company's ability to generate revenue relative to its working capital. This suggests efficient utilization of resources to drive sales growth.

Overall, the activity ratios show that Shake Shack Inc effectively manages its inventory, receivables, and working capital, contributing to its operational efficiency and financial performance.

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Average number of days

The activity ratios of Shake Shack Inc can provide valuable insights into the efficiency of the company's operations and management of working capital. Let's analyze each ratio:

1. Days of Inventory on Hand (DOH):
- The trend of DOH has shown improvement over the years, decreasing from 4.37 days in 2020 to 3.54 days in 2023.
- This implies that Shake Shack has been more efficient in managing its inventory levels and converting them into sales, which is a positive sign for the company's liquidity and profitability.

2. Days of Sales Outstanding (DSO):
- The DSO has been relatively stable over the years, fluctuating between 5.64 days and 6.77 days.
- It indicates the average number of days it takes for the company to collect its accounts receivable. The stable DSO suggests that Shake Shack has been consistent in its credit management policies.

3. Number of Days of Payables:
- Shake Shack's days of payables have shown variability, with a significant increase in 2021 (22.55 days) compared to the previous years.
- A higher number of days of payables may indicate that the company is taking longer to pay its suppliers, possibly to manage cash flow. However, extended payables may strain supplier relationships.

Overall, Shake Shack's activity ratios reflect a positive trend in inventory management and stable receivables collection, but the fluctuations in payables warrant further investigation into the company's working capital management strategies.

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Long-term

Shake Shack Inc's long-term activity ratios indicate its efficiency in managing fixed assets and total assets over the past five years. The fixed asset turnover ratio has been relatively stable, ranging from 1.52 to 2.04. This indicates that the company generates sales efficiently from its investment in fixed assets, such as property, plant, and equipment.

On the other hand, the total asset turnover ratio shows a fluctuating trend, with values ranging from 0.45 to 0.68. This ratio measures how effectively the company generates sales from all its assets. The increase in this ratio over the years suggests that Shake Shack Inc has improved its overall asset utilization and is generating more sales relative to its total asset base.

Overall, the company's long-term activity ratios demonstrate improving efficiency in utilizing both fixed assets and total assets to generate revenue. This indicates a positive trend in the company's operational effectiveness and asset management over the analyzed period.