Simply Good Foods Co (SMPL)

Short-term

Turnover ratios

Simply Good Foods Co's activity ratios provide insights into the efficiency of its operating cycle and management of working capital. Let's analyze each ratio:

1. Inventory Turnover: This ratio measures how efficiently the company is managing its inventory. The increasing trend from 2020 to 2023 indicates that the company has been more effective in turning over its inventory, resulting in faster sales and potentially lower holding costs.

2. Receivables Turnover: This ratio reflects the efficiency of the company in collecting its credit sales. The gradual decrease in receivables turnover may imply that the company is taking longer to collect its receivables, possibly indicating a shift towards more liberal credit terms or potential concerns regarding the creditworthiness of customers.

3. Payables Turnover: This ratio demonstrates how efficiently the company is managing its supplier credit. The increasing trend in payables turnover suggests that the company has been extending its payables, potentially optimizing its cash flow and improving supplier relationships.

4. Working Capital Turnover: This ratio measures how effectively the company is utilizing its working capital to generate sales revenue. The fluctuating trend in working capital turnover indicates the varying efficiency in utilizing working capital over the years.

In conclusion, Simply Good Foods Co's activity ratios reveal both strengths and potential areas for improvement. The company has shown improvement in inventory turnover and payables turnover, indicating better inventory management and cash flow optimization. However, the decreasing trend in receivables turnover suggests that the company may need to focus on more efficient management of its accounts receivable. The fluctuating trend in working capital turnover may warrant a closer examination of the company's working capital management strategies.

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Average number of days

Sure, let's start by analyzing the activity ratios of Simply Good Foods Co using the data provided.

Days of Inventory on Hand (DOH):
The Days of Inventory on Hand ratio measures how many days it takes for the company to sell its inventory. A higher number indicates that the company is taking longer to turn its inventory into sales. Over the past five years, the company's DOH has fluctuated, with the highest being 63.34 days in 2022 and the lowest being 43.81 days in 2020. The increase in DOH in 2022 could suggest that the company experienced challenges in managing its inventory, while the decrease in 2020 might indicate more efficient inventory management.

Days of Sales Outstanding (DSO):
The Days of Sales Outstanding ratio reflects the average number of days it takes for the company to collect revenue after a sale is made. A higher number suggests that the company is taking longer to collect its accounts receivable. Simply Good Foods Co's DSO has shown variations over the past five years, with a peak of 42.61 days in 2023 and a low of 30.85 days in 2019. The increase in DSO in 2023 may indicate challenges in collecting receivables promptly, while the decrease in 2019 suggests better receivables management.

Number of Days of Payables:
This ratio indicates the average number of days it takes for the company to pay its suppliers. A longer period signifies that the company is taking more time to settle its payables. Simply Good Foods Co's number of days of payables has fluctuated, with the highest being 36.58 days in 2021 and the lowest being 18.76 days in 2019. The increase in 2021 could imply challenges in timely payments to suppliers, while the decrease in 2019 suggests more efficient management of payables.

In summary, the analysis of Simply Good Foods Co's activity ratios indicates varying levels of efficiency in managing inventory, collecting receivables, and paying suppliers over the past five years. The company should closely monitor these ratios to ensure optimal working capital management and operational efficiency.

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Long-term

The long-term activity ratios provide insight into a company's effectiveness in utilizing its assets to generate sales over an extended period. Let's analyze the long-term activity ratios of Simply Good Foods Co based on the provided data.

Fixed Asset Turnover:
The fixed asset turnover ratio measures how efficiently a company generates sales from its fixed assets. A higher ratio usually indicates better asset utilization. Over the past five years, Simply Good Foods Co's fixed asset turnover has exhibited a declining trend, indicating a decrease in the efficiency of generating sales from its fixed assets. The ratio decreased from 213.10 in 2019 to 49.98 in 2023. This substantial decrease suggests that the company may be experiencing challenges in utilizing its fixed assets to drive sales growth.

Total Asset Turnover:
The total asset turnover ratio measures a company's ability to generate sales from its total assets. A higher ratio typically reflects effective asset utilization. Simply Good Foods Co's total asset turnover has shown fluctuating patterns over the past five years, with the ratio ranging from 0.41 in 2020 to 0.59 in 2023. The fluctuation in the ratio indicates variability in the company's ability to efficiently generate sales from its total assets. While the ratio increased from 0.46 in 2019 to 0.59 in 2023, it's essential to consider the industry benchmarks and the company's specific circumstances to assess the effectiveness of asset utilization.

Overall, the declining trend in fixed asset turnover and the fluctuating pattern in total asset turnover suggest that Simply Good Foods Co may need to evaluate its asset management strategies and consider ways to improve efficiency in generating sales from both fixed and total assets as it moves forward. Factors such as capital investment decisions, operational efficiency, and sales growth strategies may contribute to improving asset turnover ratios and, ultimately, the company's overall financial performance.