Sotera Health Co (SHC)

Short-term

Turnover ratios

Activity ratios provide insight into how efficiently a company manages its resources and operations.

1. Inventory Turnover: Sotera Health Co's inventory turnover has fluctuated over the past five years, with a high of 12.03 in 2022 and a low of 7.60 in 2021. The ratio indicates how many times the company's inventory is sold and replaced during the year. A higher turnover ratio generally signifies efficient inventory management.

2. Receivables Turnover: The receivables turnover ratio measures how efficiently a company collects payments from its customers. Sotera Health Co's receivables turnover has remained relatively stable, ranging from 6.84 to 8.26 over the last five years. A higher turnover ratio suggests that the company is effective in collecting on credit sales.

3. Payables Turnover: This ratio evaluates how quickly a company pays its suppliers. Sotera Health Co's payables turnover has shown variability, with a low of 5.67 in 2021 and a high of 9.12 in 2019. A higher payables turnover ratio may indicate that the company is managing its payables efficiently.

4. Working Capital Turnover: This ratio measures how effectively a company utilizes its working capital to generate sales revenue. Sotera Health Co's working capital turnover has decreased over the past five years, with a notable drop from 6.06 in 2019 to 3.21 in 2023. A declining turnover ratio could suggest that the company is becoming less efficient in utilizing its working capital to support sales.

Overall, analyzing these activity ratios provides valuable insights into Sotera Health Co's operational efficiency and management of key resources such as inventory, receivables, payables, and working capital.

---

Average number of days

Sotera Health Co's activity ratios provide insights into its operational efficiency and effectiveness in managing its working capital.

1. Days of Inventory on Hand (DOH):
- The company's DOH has fluctuated over the past five years, ranging from a low of 30.35 days in 2022 to a high of 48.00 days in 2021.
- A higher DOH indicates that the company is holding onto its inventory for a longer period before selling it, which may tie up resources and increase the risk of obsolescence.
- Sotera Health Co should aim to reduce its DOH over time by optimizing its inventory management processes to improve efficiency and free up working capital.

2. Days of Sales Outstanding (DSO):
- The DSO metric reflects the average number of days it takes for the company to collect its accounts receivable from customers.
- Sotera Health Co's DSO has shown some variability, with a peak of 53.37 days in 2023 and a low of 44.21 days in 2021.
- A lower DSO is typically preferred as it indicates that the company is collecting receivables more quickly, improving cash flow and liquidity.

3. Number of Days of Payables:
- The number of days of payables measures how long it takes for the company to pay its suppliers.
- Sotera Health Co's days of payables have ranged from 40.04 days in 2019 to 64.43 days in 2021.
- A longer period of payables may indicate that the company is effectively using trade credit to manage its cash flow and working capital needs.

In conclusion, Sotera Health Co should focus on reducing its days of inventory on hand and days of sales outstanding while maintaining an appropriate balance in managing its days of payables to optimize its working capital management and improve overall operational efficiency.

---

Long-term

The long-term activity ratios of Sotera Health Co indicate its efficiency in utilizing fixed assets and total assets to generate revenue over the years.

The fixed asset turnover ratio has shown a declining trend from 1.43 in 2021 to 1.11 in 2023. This decrease suggests that the company may be becoming less efficient in generating sales using its fixed assets. It is important for the company to monitor this ratio closely to ensure that its investment in fixed assets is yielding expected returns.

On the other hand, the total asset turnover ratio has fluctuated over the past five years, ranging from 0.30 in 2019 and 2020 to 0.34 in 2023. This ratio indicates the company's ability to generate revenue from all its assets. The improvement in total asset turnover from 2020 onwards suggests that Sotera Health Co has been more effective in utilizing its total assets to drive sales.

In conclusion, while the fixed asset turnover ratio has decreased, the total asset turnover ratio has shown some improvement over the years. Sotera Health Co should continue monitoring these ratios to ensure optimal utilization of assets and sustainable revenue generation.