Smith AO Corporation (AOS)

Smith AO Corporation's liquidity ratios have shown some fluctuations over the past five years.

1. Current Ratio: The current ratio measures the company's ability to meet short-term obligations using its current assets. Smith AO's current ratio decreased from 1.83 in 2020 to 1.55 in 2024, indicating a slight decline in short-term liquidity over the period. However, the ratio has remained above 1, suggesting that the company has more current assets than current liabilities throughout the years.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, is a more stringent measure of liquidity as it excludes inventory from current assets. Smith AO's quick ratio decreased from 1.44 in 2020 to 0.91 in 2024, signaling a decreasing ability to cover short-term obligations with its most liquid assets. This trend indicates that the company may face challenges in meeting immediate payment needs.

3. Cash Ratio: The cash ratio focuses solely on the company's ability to cover current liabilities with cash and cash equivalents. Smith AO's cash ratio declined from 0.78 in 2020 to 0.31 in 2024, displaying a downward trend in the company's cash liquidity. This decrease may indicate a reduced ability to pay off short-term obligations solely with cash reserves.

In summary, Smith AO Corporation's liquidity ratios have shown a weakening trend over the years, with a decrease in the ability to cover short-term obligations with current and liquid assets. It is crucial for the company to address these declining ratios to ensure its ability to meet financial commitments in the short term.

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Additional liquidity measure

Based on the provided data, Smith AO Corporation's cash conversion cycle has shown some fluctuations over the last five years. As of December 31, 2020, the cash conversion cycle was 30.32 days, which decreased slightly to 28.51 days by December 31, 2021. However, there was a significant increase in the cash conversion cycle to 43.81 days by December 31, 2022, followed by a further increase to 44.62 days by December 31, 2023, and a slight additional increase to 45.16 days by December 31, 2024.

These figures indicate that the company's ability to convert its investments in inventory and accounts receivable into cash has deteriorated over the years. A longer cash conversion cycle may suggest inefficiencies in managing working capital, potentially leading to increased financing costs or liquidity challenges. It is essential for the company to closely monitor and address the factors contributing to the prolonged cash conversion cycle to optimize its cash flow and overall financial performance.