The AES Corporation (AES)

The liquidity ratios of The AES Corporation provide insights into the company's ability to meet its short-term obligations.

The current ratio increased from 1.01 in 2020 to 1.18 in 2022, indicating an improvement in the company's ability to cover its current liabilities with its current assets. However, the ratio decreased to 0.80 in 2024, which may suggest potential difficulties in meeting short-term obligations.

The quick ratio, which excludes inventory from current assets, also showed a similar trend, increasing from 0.53 in 2020 to 0.62 in 2022 but then declining to 0.39 in 2024. This indicates that the company may struggle to meet its short-term obligations without relying on inventory.

The cash ratio remained relatively stable over the years, ranging from 0.19 to 0.32. This ratio measures the company's ability to cover its current liabilities with cash and cash equivalents, highlighting that The AES Corporation has maintained a sufficient level of cash to meet its short-term commitments.

Overall, while the company's liquidity ratios have shown some improvement over the years, the decline in the current and quick ratios in 2024 raises concerns about its short-term liquidity position. It would be prudent for The AES Corporation to closely monitor its liquidity position and take necessary steps to ensure its ability to meet obligations as they come due.

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Additional liquidity measure

The cash conversion cycle of The AES Corporation has shown some fluctuations over the years based on the data provided.

- As of December 31, 2020, the company had a cash conversion cycle of 17.92 days, indicating that it was able to efficiently convert its investments in inventory and accounts receivable into cash within a relatively short period.
- By December 31, 2021, the cash conversion cycle increased to 28.71 days, suggesting a longer time to convert investments into cash, which could be a sign of potential liquidity issues or inefficiencies in working capital management.
- The trend continued in 2022, with a further increase to 30.67 days, indicating a continued challenge in converting investments into cash efficiently.
- Surprisingly, as of December 31, 2023, the cash conversion cycle was negative at -10.15 days. A negative cash conversion cycle may suggest that the company is able to collect cash from customers before needing to pay its suppliers, potentially indicating strong liquidity and efficient working capital management.
- However, by December 31, 2024, the cash conversion cycle increased to 12.59 days, moving back into positive territory but still showing an efficient conversion of investments into cash compared to the previous years.

Overall, the fluctuating cash conversion cycle of The AES Corporation highlights the company's evolving working capital management practices and their impact on cash flow efficiency over the years. It is important for the company to closely monitor and manage its cash conversion cycle to ensure optimal liquidity and operational performance.