Alcoa Corp (AA)

Alcoa Corp's liquidity ratios provide insight into the company's ability to meet its short-term financial obligations.

The current ratio has shown a general declining trend over the past five years, from 1.75 in 2019 to 1.45 in 2023. This ratio indicates that for every dollar of current liabilities, Alcoa Corp has $1.45 worth of current assets to cover those liabilities. While the current ratio has decreased, it still remains above 1, suggesting that the company has an adequate level of current assets to cover its short-term liabilities.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity as it excludes inventory from current assets. Alcoa Corp's quick ratio has fluctuated over the years, with a peak of 0.94 in 2022 and a low of 0.74 in 2019 and 2023. This ratio indicates that the company may have difficulty meeting its short-term obligations using only its most liquid assets.

The cash ratio measures a company's ability to cover its short-term liabilities with its cash and cash equivalents. Alcoa Corp's cash ratio has also shown variability, ranging from 0.47 in 2023 to 0.68 in 2021. This ratio suggests that the company may have limited cash reserves to cover its immediate obligations.

Overall, Alcoa Corp's liquidity ratios indicate that while the company has a sufficient level of current assets to cover its short-term liabilities, its ability to meet obligations using only its most liquid assets (quick ratio) may be a concern. Additionally, the downward trend in these ratios over the years highlights the need for the company to closely monitor and manage its liquidity position.

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Additional liquidity measure

The cash conversion cycle of Alcoa Corp has varied over the past five years. In 2023, the company's cash conversion cycle decreased to 44.47 days from 50.59 days in 2022, indicating a more efficient management of cash flow and working capital. However, compared to 2021 when the cycle was 37.80 days, the 2023 figure is higher.

In 2020, Alcoa Corp had a notably shorter cash conversion cycle of 21.63 days, suggesting a faster conversion of inventory into cash during that period. The company's performance in 2019 was also relatively strong with a cash conversion cycle of 29.93 days.

Overall, Alcoa Corp has experienced fluctuations in its cash conversion cycle, with the metric varying based on the efficiency of its inventory management, accounts receivable collection, and accounts payable management. Further analysis would be required to determine the specific factors driving these changes and evaluate the effectiveness of the company's working capital management strategies.