Trex Company Inc (TREX)

Short-term

Turnover ratios

The activity ratios of TREX Co., Inc. provide insight into how effectively the company is managing its assets and liabilities to generate sales and revenue.

1. Inventory turnover:
- TREX Co., Inc.'s inventory turnover has fluctuated over the quarters from a low of 4.97 in Q4 2022 to a high of 10.66 in Q3 2023.
- Overall, the company's inventory turnover indicates that on average, TREX Co., Inc. sells its inventory approximately 6 times a year.
- A higher inventory turnover is generally preferable as it signifies that inventory is being managed efficiently and not sitting idle for extended periods.

2. Receivables turnover:
- The receivables turnover ratio for TREX Co., Inc. has varied significantly, with a high of 21.57 in Q4 2023 and a low of 3.17 in Q1 2023.
- This indicates that, on average, the company collects its receivables approximately 10 times a year.
- A higher receivables turnover ratio suggests that the company is efficient in collecting payments from customers.

3. Payables turnover:
- TREX Co., Inc.'s payables turnover has also been fluctuating with a range of 12.82 to 35.22 over the quarters.
- The payables turnover ratio indicates how quickly the company is paying off its suppliers.
- A higher payables turnover ratio could suggest that the company is efficiently managing its accounts payable and settling its obligations promptly.

4. Working capital turnover:
- The working capital turnover for TREX Co., Inc. has shown significant variability, reaching a high of 85.81 in Q1 2023.
- This ratio reflects how effectively the company is utilizing its working capital to generate revenue.
- A higher working capital turnover ratio indicates that the company is generating more revenue with its current assets and liabilities.

In summary, analyzing TREX Co., Inc.'s activity ratios reveals fluctuations in the efficiency of managing inventory, collecting receivables, paying off payables, and utilizing working capital to drive sales over the quarters. These ratios provide valuable insights into the company's operational efficiency and financial performance.

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Average number of days

The activity ratios of TREX Co., Inc. provide insights into how efficiently the company is managing its inventory, collecting receivables, and paying its payables.

1. Days of Inventory on Hand (DOH): This ratio measures how many days, on average, a company holds its inventory before selling it. In Q4 2023, TREX Co., Inc. had 60.84 days of inventory on hand, which was higher than the previous quarter. While the DOH fluctuated over the quarters, it showed an increasing trend compared to the same period in the previous year. This may indicate that the company is facing challenges in managing its inventory efficiently, which could lead to higher holding costs and potential obsolescence.

2. Days of Sales Outstanding (DSO): DSO reflects the average number of days it takes for a company to collect its accounts receivable. In Q4 2023, TREX Co., Inc. had a DSO of 16.92 days, significantly lower than the previous quarter. The decreasing trend in DSO indicates that the company has been able to collect its receivables more quickly, which is a positive sign as it improves cash flow and reduces the risk of bad debts.

3. Number of Days of Payables: This ratio shows how many days it takes for a company to pay its suppliers. In Q4 2023, TREX Co., Inc. had 13.61 days of payables, which was lower compared to the previous quarter. The decreasing trend in payables days may indicate that the company is managing its payables more efficiently, possibly by negotiating better terms with suppliers or settling invoices promptly.

Overall, while TREX Co., Inc. has shown improvements in collecting receivables and managing payables efficiently, the increasing trend in days of inventory on hand raises concerns about the company's inventory management practices. It is important for the company to focus on optimizing its inventory levels to improve liquidity, reduce holding costs, and maintain competitiveness in the market.

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Long-term

The fixed asset turnover ratio measures how efficiently a company generates sales from its fixed assets. In the case of TREX Co., Inc., the fixed asset turnover ratio has been decreasing over the past eight quarters, indicating that the company is becoming less efficient in using its fixed assets to generate sales. This decline may be a cause for concern as it could suggest underutilization or obsolescence of fixed assets.

On the other hand, the total asset turnover ratio reflects the company's overall efficiency in generating sales from its total assets. Similarly, TREX Co., Inc.'s total asset turnover ratio has also been on a downward trend over the same period. This decline suggests that the company is becoming less efficient in utilizing its total assets to generate revenue.

In conclusion, the decreasing trend in both the fixed asset turnover and total asset turnover ratios for TREX Co., Inc. indicates a potential inefficiency in utilizing the company's assets to drive sales. This may warrant further investigation into the company's asset management strategies and operational efficiency to identify opportunities for improvement.