Allegion PLC (ALLE)

Allegion plc's liquidity ratios have been showing a declining trend over the past five years. The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, decreased from 2.20 in 2020 to 1.26 in 2023. This indicates that Allegion plc may have less liquidity to meet its short-term obligations.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also declined from 1.64 in 2020 to 0.85 in 2023. This suggests that Allegion plc has become less capable of meeting its short-term liabilities without relying on inventory.

Further, the cash ratio, which indicates the company's ability to cover its current liabilities with its cash and cash equivalents, dropped from 1.02 in 2020 to 0.47 in 2023. This decline raises concerns about Allegion plc's ability to meet its short-term obligations with its available cash resources.

Overall, the decreasing trend in Allegion plc's liquidity ratios over the past five years indicates a potential deterioration in the company's short-term financial position and raises questions about its ability to manage its short-term obligations effectively.

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Additional liquidity measure

The cash conversion cycle of Allegion plc has shown a fluctuating trend over the past five years. In 2023, the company's cash conversion cycle reached 72.90 days, a decrease from the previous year's figure of 81.26 days. This indicates that Allegion plc took slightly less time to convert its investments in inventory into cash during the latest period.

Comparing the current cycle with earlier years, we observe an increasing trend from 2019 to 2022, where the cycle steadily rose from 53.32 days to 81.26 days. However, there was a notable improvement in 2023 when it decreased to 72.90 days, although still higher compared to 2022.

The cash conversion cycle is a key metric for assessing a company's efficiency in managing its working capital. A shorter cycle signifies that the company is efficiently converting its inventory into sales and collecting receivables to generate cash. In contrast, a longer cycle may indicate inefficiencies in the working capital management process, which could lead to increased financing costs and reduced liquidity.

Allegion plc should continue to monitor and possibly improve its cash conversion cycle to ensure optimal working capital management and enhance overall financial performance.