Allegion PLC (ALLE)

Allegion PLC's liquidity ratios suggest a fluctuating trend over the years analyzed. The current ratio, which measures the company's ability to cover short-term liabilities with its current assets, decreased from 2.20 in 2020 to 1.26 in 2023, indicating a possible weakening liquidity position. However, there was a notable improvement in 2024 with a current ratio of 2.04, suggesting better short-term solvency.

The quick ratio, a more stringent measure of liquidity excluding inventory, followed a downward trend from 0.92 in 2020 to 0.43 in 2023, indicating a potential challenge in meeting immediate obligations. However, there was a slight recovery to 0.72 in 2024, hinting at an improvement in the company's ability to cover short-term liabilities using its most liquid assets.

The cash ratio, which specifically assesses the ability to cover current liabilities with cash and cash equivalents, displayed the same trend as the quick ratio, from 0.92 in 2020 to 0.43 in 2023, before increasing to 0.72 in 2024. This indicates that Allegion PLC had a decreasing ability to settle short-term obligations with cash until 2023, but the situation improved in 2024.

Overall, while Allegion PLC experienced some liquidity challenges in the mid-years analyzed, the company displayed resilience by improving its liquidity position in the most recent period, as seen in the uptick in the current and quick ratios. Further analysis into the factors behind these fluctuations would provide a deeper insight into the company's liquidity management and financial health.

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Additional liquidity measure

The cash conversion cycle of Allegion PLC has shown fluctuations over the past five years. In December 2020, the company had a cash conversion cycle of 67.05 days, indicating that it took Allegion approximately 67 days to convert its investments in inventory and other resources back into cash.

By December 2021, this cycle increased to 83.52 days, suggesting a lengthened period for Allegion to convert its investments into sales revenue and then into cash. In the following years, the trend continued with the cash conversion cycle growing further to 89.68 days in 2022, then dropping slightly to 77.35 days in 2023, and finally decreasing to 73.39 days by December 2024.

Overall, the upward trend in the cash conversion cycle from 2020 to 2022 could indicate potential challenges in managing inventory, receivables, and payables efficiently. The subsequent decrease in the cycle duration from 2023 to 2024 may suggest improvements in Allegion's working capital management, leading to a shorter time frame for the company to convert its resources into cash.