Watsco Inc (WSO)
Inventory turnover
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Cost of revenue | US$ in thousands | 5,291,630 | 5,244,060 | 4,612,650 | 3,832,110 | 3,613,410 |
| Inventory | US$ in thousands | 1,347,290 | 1,370,170 | 1,115,470 | 781,299 | 920,786 |
| Inventory turnover | 3.93 | 3.83 | 4.14 | 4.90 | 3.92 |
December 31, 2023 calculation
Inventory turnover = Cost of revenue ÷ Inventory
= $5,291,630K ÷ $1,347,290K
= 3.93
The inventory turnover ratio measures how effectively a company manages its inventory by indicating the number of times the inventory is sold and replaced over a specific period.
For Watsco Inc., the inventory turnover ratios over the past five years have been as follows:
- Dec 31, 2023: 3.93
- Dec 31, 2022: 3.83
- Dec 31, 2021: 4.14
- Dec 31, 2020: 4.90
- Dec 31, 2019: 3.92
A higher inventory turnover ratio is generally preferable as it suggests that the company is selling its inventory quickly and efficiently, thereby reducing storage costs and minimizing the risk of obsolete inventory.
From the trend observed for Watsco Inc., there was a decline in inventory turnover from 2019 to 2020, where the ratio reached its peak at 4.90. However, the ratio has since fluctuated around the 4.0 mark over the last few years, indicating relative stability in the company's inventory management efficiency.
Further analysis could be conducted to understand the reasons behind the fluctuations in the inventory turnover ratio to identify any potential issues or improvements in Watsco Inc.'s inventory management practices.