Avanos Medical Inc (AVNS)

Avanos Medical Inc's liquidity ratios indicate a generally healthy liquidity position over the periods analyzed. The current ratio has shown some fluctuations but has remained above 2, indicating that the company has more than enough current assets to cover its current liabilities. Notably, the current ratio peaked at 3.16 on September 30, 2020, and has generally stayed above 2.5 in most periods.

The quick ratio, which provides a more stringent measure of liquidity by excluding inventory from current assets, has been slightly lower but still mostly above 0.5. This suggests that the company can cover its short-term obligations without relying on selling inventory. However, there was a noticeable drop in the quick ratio to 0.37 on both December 31, 2023, and March 31, 2024, which may warrant further investigation into the company's ability to meet immediate obligations.

The cash ratio, which is the most conservative liquidity measure as it only considers cash and cash equivalents, has followed a similar trend to the quick ratio. The company has maintained a level above 0.5 for most periods, indicating a reasonable ability to cover its short-term liabilities with its cash reserves.

Overall, Avanos Medical Inc demonstrates good liquidity management, as reflected in its current, quick, and cash ratios. Nonetheless, management should closely monitor the quick and cash ratios during periods of declining values to ensure the company's ability to meet short-term financial obligations effectively.

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Additional liquidity measure

The cash conversion cycle of Avanos Medical Inc has exhibited fluctuations over the periods reported. At the end of December 31, 2024, the company had a cash conversion cycle of 165.29 days, showing an improvement compared to the previous quarter. The cash conversion cycle represents the time it takes for the company to convert its investments in inventory and other resources into cash flows from sales.

Analyzing the trend, we note that the company's cash conversion cycle increased significantly in the first half of 2022, reaching a peak of 205.17 days by March 31, 2024, before gradually declining in the subsequent quarters. A longer cash conversion cycle indicates that the company may be facing challenges in managing its working capital efficiently, potentially tying up resources in inventory or facing delays in receiving payments from customers.

It is important for Avanos Medical Inc to continue monitoring and managing its cash conversion cycle effectively to ensure optimal cash flow management. Strategies to improve the cycle may include streamlining inventory levels, negotiating better payment terms with suppliers, and enhancing the collection process from customers. By focusing on reducing the cash conversion cycle, the company can improve its liquidity position and overall financial performance in the long run.