Aptiv PLC (APTV)

Aptiv PLC's liquidity ratios, which provide insights into the company's ability to meet short-term obligations, show the following trends:

1. Current Ratio: Aptiv PLC's current ratio has generally been above 1, indicating that the company has had sufficient current assets to cover its current liabilities in each of the years from 2020 to 2024. The ratio has fluctuated over the years, ranging from 1.53 to 2.01. While a ratio above 1 indicates short-term liquidity, a higher ratio may suggest a stronger ability to meet current obligations.

2. Quick Ratio: The quick ratio, which provides a more stringent measure of liquidity by excluding inventories from current assets, has also generally been above 1 for Aptiv PLC during the same period. This indicates that the company has had an adequate level of highly liquid assets to cover immediate liabilities. The ratio has ranged from 1.00 to 1.48, reflecting a slight decrease in liquidity in the later years.

3. Cash Ratio: The cash ratio, which is the most conservative measure of liquidity as it considers only cash and cash equivalents, also shows a decreasing trend from 2020 to 2024. The ratios have ranged from 0.31 to 0.76, indicating that Aptiv PLC may have had a lower level of cash reserves relative to its current liabilities in the later years.

Overall, while Aptiv PLC has generally maintained liquidity levels above the critical threshold of 1 for its current and quick ratios, the decreasing trend in the cash ratio suggests a potential decrease in the company's ability to meet short-term obligations with cash alone. This analysis highlights the importance of managing liquidity effectively to ensure financial stability and meet short-term commitments.

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Additional liquidity measure

The cash conversion cycle of Aptiv PLC has shown a steady increase over the past five years. Starting at 42.46 days on December 31, 2020, it has gradually risen to 48.10 days by December 31, 2021, further increasing to 58.65 days by December 31, 2022. However, there was a slight decrease to 54.50 days by December 31, 2023, followed by a slight increase to 55.09 days by December 31, 2024.

This trend indicates that Aptiv PLC may be taking longer to convert its investments in inventory into cash receipts from sales, which could potentially be attributed to inefficiencies in managing its working capital. It is important for the company to closely monitor its inventory turnover, accounts receivable collection, and accounts payable payment processes to optimize its cash conversion cycle and maintain healthy liquidity levels.