Watsco Inc (WSO)

Short-term

Turnover ratios

Activity ratios help analyze how efficiently a company manages its assets and liabilities. Let's analyze Watsco Inc.'s activity ratios:

1. Inventory Turnover:
- Watsco Inc.'s inventory turnover has been relatively stable over the past five years, ranging from 3.83 to 4.90 times annually.
- A decreasing trend in inventory turnover could indicate potential issues such as overstocking or slow-moving inventory.
- Despite fluctuations, the company's inventory turnover remains at a reasonable level, indicating efficient management of inventory levels.

2. Receivables Turnover:
- The receivables turnover for Watsco Inc. has ranged from 8.94 to 9.74 times annually over the past five years.
- A higher turnover ratio implies that the company collects its accounts receivable more frequently, which is generally positive.
- The consistent and relatively high receivables turnover ratio suggests that Watsco Inc. efficiently collects payments from its customers.

3. Payables Turnover:
- Watsco Inc.'s payables turnover has varied between 11.50 and 15.23 times on an annual basis over the past five years.
- A higher payables turnover ratio indicates that the company pays its suppliers more frequently, which could imply good relationships with suppliers.
- The fluctuating payables turnover may reflect changes in payment terms or vendor relationships but overall shows effective management of payables.

4. Working Capital Turnover:
- The working capital turnover ratio for Watsco Inc. has ranged from 4.34 to 5.23 times annually over the past five years.
- A higher working capital turnover indicates more efficient use of working capital to generate sales.
- Watsco Inc. has maintained a relatively stable working capital turnover ratio, suggesting that the company effectively utilizes its working capital to support its operations.

In summary, Watsco Inc. demonstrates efficiency in managing its inventory, receivables, payables, and working capital based on the analysis of its activity ratios. While there may be some fluctuations, overall, the company's ratios indicate effective management of its operational assets and liabilities.

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Average number of days

Watsco Inc.'s activity ratios reflect its efficiency in managing inventory, collecting receivables, and paying suppliers.

1. Days of Inventory on Hand (DOH):
- The DOH has fluctuated over the past five years, with a decrease in 2020 followed by an increase in 2021 and a slight decrease in 2023.
- In 2023, the company held inventory for approximately 92.93 days before selling or using it, indicating a slower turnover of inventory compared to 2020 but an improvement compared to 2021.
- A decreasing trend in DOH suggests better management in controlling the levels of inventory on hand, which may lead to lower storage costs and potentially improved cash flow.

2. Days of Sales Outstanding (DSO):
- There has been variability in DSO over the analyzed period, with the lowest value reported in 2022 and the highest in 2019.
- In 2023, Watsco Inc. collected receivables in around 39.98 days on average, similar to 2020 and 2021 but slightly higher compared to 2019 and lower compared to 2022.
- Lower DSO indicates faster collection of receivables, which can enhance the company's liquidity position and reduce the risk of bad debts.

3. Number of Days of Payables:
- The days of payables exhibited fluctuations between 2019 and 2023, with a noticeable drop in 2020 followed by varying trends in the subsequent years.
- As of 2023, Watsco Inc. takes approximately 25.48 days to settle its payables, showing an increase compared to 2022 and 2020 but a decrease compared to 2019.
- A longer payment period may improve liquidity and cash flow but could strain relationships with suppliers if not managed effectively.

In summary, while there have been fluctuations in Watsco Inc.'s activity ratios over the analyzed years, the company has shown improvements in managing inventory turnover and receivables collection efficiency. However, attention may be needed to optimize the payment period to suppliers to maintain healthy working capital management.

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Long-term

Watsco Inc.'s long-term activity ratios reflect the efficiency with which the company is utilizing its fixed assets and total assets to generate sales revenue. The fixed asset turnover ratio has shown a fluctuating trend over the past five years, ranging from 48.42 to 58.00. This ratio indicates that in 2023, for every dollar invested in fixed assets, Watsco generated $53.47 in sales revenue. This suggests that the company has been effectively leveraging its fixed assets to drive sales.

On the other hand, the total asset turnover ratio has also exhibited variability, with values ranging from 1.87 to 2.09 over the same period. In 2023, Watsco generated $1.95 in sales for each dollar of total assets. This ratio indicates the company's overall efficiency in using all its assets, including fixed and current assets, to generate revenue.

Overall, the trend in both fixed asset turnover and total asset turnover ratios demonstrates Watsco Inc.'s ability to efficiently manage and utilize its assets to drive sales, with fluctuations indicating changes in asset utilization efficiency over the years.