Automatic Data Processing Inc (ADP)
Liquidity ratios
| Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | |
|---|---|---|---|---|---|
| Current ratio | 1.05 | 1.01 | 0.99 | 0.99 | 1.07 |
| Quick ratio | 0.28 | 0.15 | 0.12 | 0.08 | 0.14 |
| Cash ratio | 0.19 | 0.07 | 0.05 | 0.03 | 0.07 |
The liquidity ratios of Automatic Data Processing Inc. over the period from June 30, 2021, to June 30, 2025, exhibit notable trends and developments.
The current ratio, which measures the company's ability to meet short-term obligations with its current assets, has fluctuated slightly over the analyzed period. It started at 1.07 in June 2021, indicating a modestly healthy liquidity position, but then declined to 0.99 in both June 2022 and June 2023, approaching a critical threshold of 1.0. This near-stagnation suggests a period of limited improvement in the company's ability to cover current liabilities solely with current assets. Subsequently, the ratio increased modestly to 1.01 in June 2024 and further to 1.05 in June 2025, crossing the threshold of 1.0, implying a slight strengthening of liquidity positions and an improved capacity to meet short-term obligations.
The quick ratio, which excludes inventory and other less liquid current assets to provide a more conservative measure of liquidity, shows a generally low level throughout the period, emphasizing the company's reliance on liquid assets such as receivables and cash. It declined from 0.14 in June 2021 to a low of 0.08 in June 2022, then elevated slightly to 0.12 in June 2023. Further improvements are observed in subsequent years, with the ratio reaching 0.15 in June 2024 and nearly doubling to 0.28 by June 2025. Despite these increases, the quick ratio remains well below 1.0, indicating limited immediate liquid assets available to cover current liabilities without liquidating inventories or other less liquid assets.
The cash ratio, representing the most stringent measure of liquidity by considering only cash and cash equivalents relative to current liabilities, follows a similar trend. It decreases from 0.07 in June 2021 to 0.03 in June 2022, then slightly rises to 0.05 in June 2023. A more substantial increase occurs in subsequent years, culminating at 0.19 in June 2025. Despite this upward trend, the cash ratio remains significantly below 0.20 throughout the period, illustrating that a relatively small portion of the company's current liabilities is covered solely by cash and equivalents.
Overall, the analysis suggests that Automatic Data Processing Inc. has maintained a cautious liquidity profile over the analyzed period. The current ratio has approached and slightly surpassed the critical threshold of 1.0, indicating marginal liquidity margins. The quick and cash ratios continue to reflect a conservative liquidity stance, with reliance on a broader set of current assets rather than immediate cash resources. The progressively improving ratios from 2022 to 2025 signal a gradual strengthening of liquidity positions, but the ratios remain below levels typically considered comfortable, implying that the company's short-term liquidity buffer is limited but showing signs of steady improvement.
See also:
Additional liquidity measure
| Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 57.43 | 61.34 | 57.15 | 2,129.13 | 1,646.28 |
The cash conversion cycle (CCC) of Automatic Data Processing Inc. over the period from June 30, 2021, to June 30, 2025, exhibits significant fluctuations. As of June 30, 2021, the CCC was approximately 1,646.28 days, indicating an exceptionally prolonged cycle, suggesting that the company took a considerable amount of time to convert its investments in inventory and other resources into cash flows. This unusually high figure could reflect specific operational characteristics or accounting practices during that period, but it is markedly higher than typical industry levels.
By June 30, 2022, the CCC increased further to approximately 2,129.13 days, illustrating a continued elongation of the cycle. This escalation may point to operational challenges, extended receivables collection periods, or delays in inventory turnover, and warrants further investigation into the underlying causes during that fiscal year.
However, a drastic change occurs by June 30, 2023, when the CCC drops sharply to approximately 57.15 days. This substantial reduction indicates a significant improvement in the company's cash flow efficiency, likely driven by enhancements in receivables collection, inventory management, or payables turnover. The reduction reflects a more streamlined process capable of converting investments into cash within a much shorter timeframe.
Between June 30, 2023, and June 30, 2025, the CCC remains relatively stable, fluctuating marginally around the low 60-day range — specifically approximately 61.34 days in 2024 and 57.43 days in 2025. This stability suggests that the company has attained a consistent and efficient cash management process, maintaining a cycle of approximately two months, aligning with industry norms and best practices for cash conversion efficiency.
In summary, the data reveals a trajectory from a highly extended and inefficient cash conversion cycle in 2021 and 2022 towards a markedly improved and sustainable cycle by 2023, which has been maintained through 2024 and into 2025. This progression implies significant operational improvements, better working capital management, and possibly strategic initiatives aimed at optimizing receivables, payables, and inventory turnover.