Arlo Technologies (ARLO)

Based on the provided data, let's analyze Arlo Technologies' liquidity ratios:

1. Current Ratio:
- The current ratio measures the firm's ability to meet its short-term obligations with its current assets. Arlo Technologies' current ratio has been relatively stable over the past five years, ranging from 1.43 to 1.55. This indicates that the company has, on average, $1.43 to $1.55 in current assets for every dollar of current liabilities. While the current ratio is generally above 1, suggesting the company can cover its short-term obligations, it has been slightly decreasing over the years, which could be a point of concern.

2. Quick Ratio:
- The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity as it excludes inventory from current assets. Arlo Technologies' quick ratio has also shown a downward trend from 0.83 in 2021 to 0.86 in 2024. This indicates that the company may have more difficulty meeting its short-term obligations without relying on inventory, which could be a warning sign if the ratio continues to decline.

3. Cash Ratio:
- The cash ratio is the most conservative liquidity ratio, as it only considers cash and cash equivalents in relation to current liabilities. Arlo Technologies' cash ratio has remained consistent at 0.70 to 0.86 over the five-year period. This suggests that the company has between $0.70 to $0.86 in cash and equivalents for every dollar of current liabilities, indicating a stable ability to cover immediate obligations with cash.

In summary, while Arlo Technologies has maintained acceptable levels of liquidity based on the current and cash ratios, the decreasing trend in the quick ratio raises some concerns about the company's ability to meet short-term obligations without relying on inventory. Monitoring these ratios closely will be essential for assessing the company's liquidity position accurately.

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Additional liquidity measure

The cash conversion cycle of Arlo Technologies has shown fluctuating trends over the past five years. The cycle decreased from 78.26 days as of December 31, 2020, to 42.84 days by December 31, 2021, indicating an improvement in the efficiency of converting invested resources into cash. However, there was a slight increase in the cycle to 47.95 days by December 31, 2022, which suggests a slower conversion process. Subsequently, the cycle decreased again to 43.32 days by December 31, 2023, before slightly increasing to 45.86 days by December 31, 2024.

Overall, Arlo Technologies has managed to reduce the time taken to convert its investments into cash in the initial years but experienced some fluctuations in the later years. The company should focus on optimizing its working capital management to maintain a healthy cash conversion cycle and ensure efficient operations.