Smith AO Corporation (AOS)

A.O. Smith Corp.'s liquidity ratios provide insight into the company's ability to meet its short-term obligations. The current ratio, which measures the company's ability to cover its current liabilities with current assets, has shown a declining trend over the past five years, from 1.96 in 2019 to 1.59 in 2023. While the current ratio has decreased, the company still maintains a current ratio above 1, indicating that it can meet its short-term obligations.

The quick ratio, which excludes inventory from current assets, provides a more conservative measure of liquidity. A.O. Smith Corp.'s quick ratio has also shown a decreasing trend over the years, from 1.56 in 2019 to 1.06 in 2023. This suggests that the company may have a lower ability to meet its short-term obligations without relying on inventory.

The cash ratio, which measures the company's ability to cover its current liabilities with cash and cash equivalents, has also shown a decreasing trend over the years. A.O. Smith Corp.'s cash ratio declined from 0.79 in 2019 to 0.43 in 2023, indicating a decreasing ability to cover short-term obligations with cash on hand.

Overall, A.O. Smith Corp.'s liquidity ratios have shown a declining trend over the past five years, which may raise some concerns about the company's ability to meet its short-term obligations. However, it is important to consider other factors such as industry benchmarks and the company's overall financial health when interpreting these ratios.

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Additional liquidity measure

The cash conversion cycle for A.O. Smith Corp. has varied over the past five years. In 2023, the cash conversion cycle increased to 40.59 days from 40.04 days in 2022. This indicates that the company took slightly longer to convert its resources back into cash during the year. Comparing to 2021 and 2020, where the cash conversion cycle was considerably lower at 16.58 days and 13.48 days respectively, it suggests that in those years, A.O. Smith Corp. managed its cash resources more efficiently.

However, in 2019, the cash conversion cycle was higher at 30.28 days, signifying a longer time taken to convert resources into cash compared to 2021 and 2020 but still lower than the recent years.

Overall, the trend in the cash conversion cycle for A.O. Smith Corp. indicates some fluctuations, with potential areas for improvement in managing the company's cash resources effectively to minimize the time taken to convert resources into cash.