AAON Inc (AAON)

Current Ratio Analysis:

- The current ratio measures AAON Inc's ability to cover its short-term obligations with its current assets. A higher current ratio indicates better liquidity.

- Over the past five years, AAON Inc's current ratio has fluctuated, starting at 3.73 in 2020 and dropping to 2.40 in 2022 before increasing to 2.79 in 2024.

- Despite the fluctuations, the current ratio has generally remained above 2, indicating that AAON Inc has had sufficient current assets to cover its short-term liabilities.

Quick Ratio Analysis:

- The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets.

- AAON Inc's quick ratio has shown significant volatility over the years, plummeting from 1.34 in 2020 to 0.00 in 2023 and 2024, indicating a potential liquidity concern.

- A quick ratio below 1 suggests that AAON Inc may struggle to meet its short-term obligations without relying on the sale of inventory.

Cash Ratio Analysis:

- The cash ratio is the most conservative liquidity ratio, focusing only on the company's ability to cover its current liabilities with its cash and cash equivalents.

- AAON Inc's cash ratio has followed a similar trend to the quick ratio, starting at 1.34 in 2020 and declining to 0.00 in 2023 and 2024.

- A cash ratio of 0.00 suggests that AAON Inc may not have enough cash on hand to cover its immediate liabilities, which could signal a liquidity risk.

In conclusion, while AAON Inc's current ratio has generally remained healthy over the years, the downward trend in the quick ratio and cash ratio raises concerns about the company's ability to meet its short-term obligations without relying on inventory or cash reserves. Further analysis of the company's cash management practices and liquidity position may be warranted to assess and address these potential liquidity risks.

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Additional liquidity measure

AAON Inc's cash conversion cycle has exhibited fluctuations over the past five years. The cycle, which represents the time it takes for a company to convert its investments in inventory back into cash, shows a gradual increase from 83.66 days in December 2020 to 119.86 days in December 2021. Subsequently, there was a slight decline to 111.50 days by December 2022, followed by another decrease to 101.29 days by December 2023. The cycle then decreased further to 85.14 days by December 2024.

Overall, the company's cash conversion cycle trended upwards initially, reflecting potential challenges in efficiently managing inventories and collecting receivables. However, the subsequent decline in the cycle suggests improvements in inventory management and collection procedures. Monitoring the cash conversion cycle can provide insights into AAON Inc's operational efficiency and liquidity management over time. Further analysis of the factors contributing to these changes could help in identifying areas for enhancement to optimize working capital management.