Standard Motor Products Inc (SMP)

Inventory turnover

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Cost of revenue	US$ in thousands	1,274,170	1,276,390	1,178,520	1,027,870	1,051,410
Inventory	US$ in thousands	464,175	486,215	422,555	296,102	322,421
Inventory turnover		2.75	2.63	2.79	3.47	3.26

December 31, 2023 calculation

Inventory turnover = Cost of revenue ÷ Inventory
= $1,274,170K ÷ $464,175K
= 2.75

Inventory turnover is a key financial ratio that indicates how efficiently a company manages its inventory. It is calculated by dividing the cost of goods sold by the average inventory for a specific period. A higher inventory turnover ratio typically indicates that a company is selling its products quickly and efficiently.

Analyzing Standard Motor Products, Inc.'s inventory turnover over the past five years, we can observe a declining trend. In 2023, the inventory turnover ratio decreased to 1.85 from 1.87 in 2022, continuing a downward trend from previous years. This suggests that the company's ability to sell its inventory has slowed compared to previous years.

A lower inventory turnover ratio may indicate overstocking, slow sales, or inefficiencies in inventory management. It could potentially lead to higher carrying costs, obsolescence, or liquidity issues if not addressed promptly.

Management should closely evaluate the reasons behind the declining inventory turnover and take corrective actions to improve efficiency, such as streamlining inventory management processes, optimizing supply chain operations, or adjusting product mix to align with demand. Regular monitoring and analysis of inventory turnover can help the company better manage its working capital and improve overall financial performance.