Allete Inc (ALE)

Based on the provided data, we can observe the following trends in Allete Inc's liquidity ratios:

1. Current Ratio: Allete's current ratio has shown an increasing trend over the years, improving from 0.55 in 2020 to 1.08 in 2024. This indicates the company's ability to meet its short-term obligations has strengthened significantly. A current ratio above 1 indicates that the company has more current assets than current liabilities, which is a positive sign.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, measures the company's ability to pay off its current liabilities without relying on the sale of inventory. Allete Inc's quick ratio fluctuated over the years, with a low of 0.28 in 2022 and a high of 1.04 in 2020. A quick ratio below 1 may suggest that the company may have difficulty meeting its short-term obligations without selling inventory.

3. Cash Ratio: The cash ratio reflects Allete's ability to cover its short-term liabilities using only its cash and cash equivalents. The cash ratio has varied, with a significant drop from 0.75 in 2020 to 0.08 in 2021, and then recovering to 0.19 in 2023. A higher cash ratio indicates a more financially stable position as the company has sufficient cash to cover its short-term obligations.

Overall, while the current and cash ratios have shown improvement or stability over the years, the quick ratio has been more volatile. It is essential for Allete Inc to maintain a healthy balance between its current assets and liabilities to ensure it can meet its short-term financial commitments effectively.

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Additional liquidity measure

The cash conversion cycle of Allete Inc has shown fluctuations over the past five years. In December 31, 2020, the company had a relatively low cash conversion cycle of 8.51 days, indicating its ability to efficiently convert its investments in raw materials and other inputs into cash receipts from sales.

However, by December 31, 2021, the cash conversion cycle had significantly increased to 26.61 days, suggesting a potential strain on the company's liquidity and working capital management. This uptick in the cycle may be attributed to delays in collecting receivables or managing inventory levels less effectively.

The following year, by December 31, 2022, the cash conversion cycle spiked dramatically to 256.60 days, indicating a substantial lengthening in the time it takes for the company to convert its investments into cash flows. This prolonged cycle may signal inefficiencies in the company's operations, such as delays in collecting payments from customers or difficulties in managing inventory turnover.

In December 31, 2023, the cash conversion cycle decreased to 61.03 days, showing some improvement compared to the previous year. This reduction suggests that Allete Inc may have taken steps to enhance its working capital management practices and streamline its operating processes.

By December 31, 2024, the cash conversion cycle increased slightly to 110.63 days, indicating a longer period required for the company to convert its investments into cash. While this uptick may indicate some challenges in working capital efficiency, it is important for the company to evaluate and address any operational issues contributing to this extended cycle.

In conclusion, the analysis of Allete Inc's cash conversion cycle highlights the company's fluctuations in converting its investments into cash over the past five years. It is essential for the company to closely monitor its working capital management practices to optimize cash flows and enhance overall operational efficiency.