Watsco Inc (WSO)

Short-term

Turnover ratios

Inventory turnover is a measure of how many times a company's inventory is sold and replaced over a period. Watsco Inc.'s inventory turnover has been relatively stable over the past eight quarters, ranging from 3.06 to 3.93. This indicates that the company is efficiently managing its inventory levels, with a higher turnover ratio generally being favorable.

Receivables turnover reflects how quickly a company collects on its credit sales. Watsco Inc.'s receivables turnover has also been consistent, ranging from 7.24 to 9.74 over the same period. A higher turnover ratio suggests that the company is effectively collecting payments from customers, which is a positive sign for its cash flow.

Payables turnover measures how quickly a company pays its suppliers. Watsco Inc.'s payables turnover has fluctuated, ranging from 8.01 to 14.33. A higher turnover ratio indicates that the company is efficiently managing its payables, potentially benefiting from favorable credit terms or discounts from suppliers.

Working capital turnover assesses how efficiently a company is using its working capital to generate sales. Watsco Inc.'s working capital turnover has also shown consistency, varying from 3.72 to 5.23. A higher turnover ratio suggests that the company is effectively utilizing its working capital to support its operations and generate revenue.

Overall, Watsco Inc. appears to be performing well in terms of its activity ratios, demonstrating efficiency in managing its inventory, receivables, payables, and working capital. Consistent ratios indicate good management practices that support the company's operational efficiency and financial health.

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Average number of days

Watsco Inc.'s activity ratios provide insights into the company's efficiency in managing its inventory, receivables, and payables.

1. Days of Inventory on Hand (DOH): The trend in DOH indicates the number of days it takes for Watsco to sell its inventory. A decreasing trend in DOH from Q2 2023 to Q4 2023 (119.14 days to 92.93 days) suggests that the company has improved its inventory management efficiency. However, the average DOH for Q4 2023 compared to the same period last year (95.37 days in Q4 2022) shows a slight increase, which may indicate the need for further optimization in inventory control.

2. Days of Sales Outstanding (DSO): DSO reveals how quickly Watsco collects payments from its customers. The decrease in DSO from 50.43 days in Q2 2023 to 39.98 days in Q4 2023 reflects an improvement in the company's accounts receivable management. The Q4 2023 DSO is also lower than the figure from the same quarter in the previous year (43.55 days in Q4 2022), demonstrating enhanced efficiency in collecting sales proceeds.

3. Number of Days of Payables: This metric reflects how long it takes for Watsco to settle its payables to suppliers. A longer period indicates stronger cash flow management as the company can hold onto funds while paying suppliers later. The increase in the number of days of payables from Q2 2023 to Q4 2023 (from 42.49 days to 25.48 days) signifies a positive development in managing payables efficiently. Additionally, the Q4 2023 figure is notably lower than the same quarter in the prior year (31.75 days in Q4 2022), indicating potentially more favorable payment terms negotiated with suppliers.

In conclusion, the analysis of Watsco Inc.'s activity ratios suggests improving efficiency in managing inventory, receivables, and payables, which can positively impact the company's cash flow and overall financial performance. However, ongoing monitoring and optimization of these ratios are crucial to sustaining operational effectiveness and financial health.

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Long-term

The long-term activity ratios of Watsco Inc. can provide insights into how effectively the company is utilizing its assets to generate revenue.

First, looking at the fixed asset turnover ratio, we can see a general declining trend from Q1 2022 to Q4 2023. The fixed asset turnover ratio measures how efficiently a company is using its fixed assets to generate sales. Watsco Inc.'s fixed asset turnover ratio ranged from 53.47 to 59.21 over the past eight quarters. A higher fixed asset turnover ratio indicates that the company is generating more revenue per dollar invested in fixed assets. Despite some fluctuations, the overall trend suggests that Watsco Inc. has been effectively utilizing its fixed assets to generate revenue.

Next, examining the total asset turnover ratio, we observe fluctuations in this ratio over the same period. The total asset turnover ratio indicates how efficiently a company is using all its assets to generate sales. Watsco Inc.'s total asset turnover ratio ranged from 1.75 to 2.09 over the past eight quarters. A higher total asset turnover ratio suggests that the company is generating more revenue per dollar invested in both fixed and current assets. The fluctuations in this ratio may indicate changes in the company's asset composition or sales levels during the period.

Overall, while the fixed asset turnover ratio shows a declining trend, the total asset turnover ratio demonstrates fluctuations. It appears that Watsco Inc. has been able to effectively utilize its assets to generate revenue, although some variability in performance is evident. Further analysis and consideration of other factors would be necessary to fully assess the company's long-term activity efficiency.