West Pharmaceutical Services Inc (WST)

Short-term

Turnover ratios

Activity ratios provide insights into how efficiently a company is managing its resources and assets to generate revenue. Let's analyze the activity ratios of West Pharmaceutical Services, Inc. based on the provided data.

1. Inventory turnover:
- The inventory turnover ratio measures how effectively a company manages its inventory levels. A higher ratio indicates efficient inventory management.
- West Pharmaceutical Services, Inc. has maintained a relatively stable inventory turnover ratio over the past five years, ranging from 4.19 to 5.24.
- The slight fluctuations in the inventory turnover ratio suggest that the company has been effective in managing its inventory levels efficiently.

2. Receivables turnover:
- The receivables turnover ratio reflects how quickly a company collects cash from its credit sales. A higher ratio indicates faster cash collection.
- West Pharmaceutical Services, Inc. has consistently maintained a stable receivables turnover ratio, ranging from 5.57 to 5.79 over the past five years.
- The consistency in the receivables turnover ratio suggests that the company has been successful in managing its accounts receivable effectively, ensuring timely collection of cash from credit sales.

3. Payables turnover:
- The payables turnover ratio measures how quickly a company pays its suppliers. A higher ratio indicates faster payment to suppliers.
- West Pharmaceutical Services, Inc. has exhibited some fluctuations in its payables turnover ratio, ranging from 6.47 to 8.13 over the past five years.
- The variations in the payables turnover ratio indicate changes in the company's payment terms with suppliers, which may impact its relationships with them.

4. Working capital turnover:
- The working capital turnover ratio evaluates how efficiently a company utilizes its working capital to generate sales revenue. A higher ratio implies better utilization of working capital.
- West Pharmaceutical Services, Inc. has demonstrated a consistent working capital turnover ratio, ranging from 2.06 to 2.57 over the past five years.
- The stability in the working capital turnover ratio indicates that the company has been effectively utilizing its working capital to support its operations and generate revenue.

Overall, West Pharmaceutical Services, Inc. has maintained commendable efficiency in managing its inventory, accounts receivable, payables, and working capital, as indicated by the stable or improving trends in its activity ratios over the past five years.

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Average number of days

Analyzing West Pharmaceutical Services, Inc.'s activity ratios over the past five years reveals trends in the efficiency of managing its inventory, receivables, and payables.

1. Days of inventory on hand (DOH): The DOH has been gradually increasing from 69.71 days in 2019 to 87.15 days in 2023. This indicates that the company is holding inventory for a longer period, which may tie up capital and increase holding costs. A higher DOH could signify inefficient inventory management or slowing sales.

2. Days of sales outstanding (DSO): The DSO indicates the average number of days it takes for the company to collect its accounts receivable. West Pharmaceutical Services, Inc. has maintained a relatively stable DSO ranging from 63.03 days in 2021 to 65.51 days in 2020. A consistent DSO may suggest the company has been effective in managing its credit terms and collection processes.

3. Number of days of payables: The number of days of payables decreased from 46.37 days in 2019 to 48.60 days in 2023. This suggests that the company is taking longer to pay its suppliers, which could be advantageous in terms of cash flow management. However, elongating payables may strain supplier relationships if not managed carefully.

Overall, West Pharmaceutical Services, Inc. should focus on optimizing its inventory levels to avoid excess holding costs, maintain efficient collection processes to manage cash flow effectively, and balance its payment terms to suppliers to sustain healthy relationships while managing cash outflows.

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Long-term

The fixed asset turnover ratio for West Pharmaceutical Services, Inc. has been fluctuating over the past five years. The ratio decreased from 2.19 in 2019 to 2.09 in 2023, with fluctuations in between. This ratio measures how efficiently the company is utilizing its fixed assets to generate revenue. A higher fixed asset turnover ratio indicates that the company is generating more sales from its fixed assets.

On the other hand, the total asset turnover ratio has also been somewhat unstable over the same period. It decreased from 0.79 in 2019 to 0.77 in 2023, with some variation in between. This ratio reflects the efficiency of the company in generating sales from all its assets, including fixed and current assets. A higher total asset turnover ratio signifies that the company is generating more sales relative to its total assets.

Overall, while the fixed asset turnover has generally been higher than the total asset turnover for West Pharmaceutical Services, Inc., both ratios have shown fluctuations over the past five years. This indicates that the company's efficiency in utilizing its assets to generate sales has been variable and may require further analysis to understand the underlying reasons for these fluctuations. It's also important to consider industry benchmarks and trends when evaluating these ratios to gain a more comprehensive understanding of the company's long-term activity performance.