Avanos Medical Inc (AVNS)

The liquidity ratios of Avanos Medical Inc, as reflected in the data provided, have exhibited fluctuations over the past five years.

1. Current Ratio:
The current ratio measures the company's ability to pay off its short-term obligations with its current assets. Avanos Medical's current ratio has shown a declining trend from 3.01 in 2021 to 2.08 in 2023. While the current ratio remains above 1, indicating that the company has more current assets than current liabilities, the decreasing trend raises concerns about its short-term liquidity position.

2. Quick Ratio:
The quick ratio, also known as the acid-test ratio, provides a more conservative measure of liquidity by excluding inventory from current assets. Avanos Medical's quick ratio has also shown a decline over the years, from 1.93 in 2021 to 1.11 in 2023. This trend suggests that the company may potentially face challenges in meeting its short-term obligations using its most liquid assets.

3. Cash Ratio:
The cash ratio focuses solely on the company's ability to cover its current liabilities with cash and cash equivalents. Avanos Medical's cash ratio has fluctuated over the years, reaching its lowest point of 0.50 in 2023. This indicates that the company may have a lower level of cash reserves compared to its current liabilities, which could signal a higher liquidity risk.

In summary, while Avanos Medical Inc maintains a current ratio above 1, suggesting some level of short-term liquidity, the declining trends in both the quick ratio and cash ratio raise concerns about the company's ability to quickly meet its obligations using its most liquid assets. Management may need to closely monitor and possibly strategize to improve the company's liquidity position in the future.

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Additional liquidity measure

The cash conversion cycle of Avanos Medical Inc has shown some fluctuation over the past five years. In 2023, the company's cash conversion cycle increased to 210.31 days compared to 195.48 days in 2022. This signifies that it took Avanos Medical Inc 210.31 days to convert its investments in inventory and accounts receivable into cash from sales during 2023.

In 2021, the cash conversion cycle was at its lowest at 154.44 days, indicating that the company was able to more efficiently manage its working capital and convert its inventory and receivables into cash within a shorter period. This improvement in efficiency suggests better inventory management and quicker collection of receivables.

The increase in the cash conversion cycle in 2023 compared to 2022 could be a concern as it indicates a longer time taken to convert investments into cash, potentially leading to cash flow challenges or inefficiencies in working capital management. It's important for Avanos Medical Inc to closely monitor and address factors impacting its cash conversion cycle to ensure optimal working capital management and improved liquidity.