Advance Auto Parts Inc (AAP)

Advance Auto Parts Inc's liquidity ratios have shown some fluctuations over the five-year period from 2020 to 2024.

1. Current Ratio: The current ratio measures the company's ability to cover its short-term liabilities with its current assets. Advance Auto Parts Inc's current ratio decreased from 1.32 in 2020 to 1.21 in 2021, further declining to 1.11 in 2022, before recovering slightly to 1.20 in 2023 and reaching 1.32 in 2024. The gradual increase in the current ratio after 2022 indicates an improvement in the company's short-term liquidity position.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventories from current assets. Advance Auto Parts Inc's quick ratio decreased significantly from 0.18 in 2020 to 0.12 in 2021 and further to 0.05 in 2022. However, there was a notable improvement in 2023 to 0.09 and a substantial increase to 0.40 in 2024. The sharp increase in the quick ratio in 2024 could suggest a better ability to meet short-term obligations without relying on selling inventory.

3. Cash Ratio: The cash ratio measures the company's ability to cover its short-term liabilities with cash and cash equivalents. Advance Auto Parts Inc's cash ratio followed a similar trend to the quick ratio, declining from 0.18 in 2020 to 0.12 in 2021 and further down to 0.05 in 2022. The ratio then improved to 0.09 in 2023 and surged to 0.40 in 2024, indicating a significant increase in its ability to cover short-term liabilities with readily available cash.

Overall, while there were fluctuations in Advance Auto Parts Inc's liquidity ratios over the five-year period, the company demonstrated an improvement in its liquidity position in 2024, as evidenced by the increased current ratio, quick ratio, and cash ratio.

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Additional liquidity measure

The cash conversion cycle of Advance Auto Parts Inc has shown a decreasing trend over the years, indicating efficiency in managing its cash flows related to operations. As of December 31, 2020, the company's cash conversion cycle was 294.49 days, which decreased to 231.88 days by December 31, 2024. This signifies that the company is effectively managing its working capital and converting inventory and receivables into cash at a faster rate over time. A lower cash conversion cycle typically implies improved liquidity and operational efficiency within the business. Advance Auto Parts Inc's decreasing trend in the cash conversion cycle reflects positive management of its cash flows and working capital components.