American Water Works (AWK)

American Water Works' liquidity ratios have shown some fluctuations over the years.

1. Current Ratio: This ratio indicates the company's ability to cover its short-term obligations with its current assets. The current ratio has ranged from 0.39 to 0.73 over the five-year period. A ratio below 1 suggests that the company may have difficulties meeting its short-term obligations using its current assets alone. American Water Works' current ratio has been below 1 for most of the years, indicating a potential liquidity risk.

2. Quick Ratio: The quick ratio provides a more stringent measure of liquidity as it excludes inventory from current assets. American Water Works' quick ratio has varied between 0.27 and 0.52. A quick ratio below 1 indicates that the company may struggle to meet its short-term liabilities without relying on the sale of inventory. The company's quick ratio has also been below 1 for most of the years, reinforcing the liquidity concerns seen in the current ratio.

3. Cash Ratio: The cash ratio is the most conservative liquidity ratio, measuring the company's ability to cover its short-term obligations with its cash and cash equivalents only. American Water Works' cash ratio has been the lowest among the three ratios, ranging from 0.03 to 0.19. A lower cash ratio signifies a higher dependency on non-cash current assets to meet short-term obligations. The declining trend in the cash ratio over the years may indicate a decreasing ability to cover short-term liabilities with readily available cash.

In conclusion, American Water Works' liquidity ratios suggest potential challenges in meeting its short-term obligations using current assets and cash reserves alone. Management may need to closely monitor and improve the company's liquidity position to mitigate any liquidity risks that may arise.

---

Additional liquidity measure

Based on the provided data, American Water Works' cash conversion cycle has exhibited varying trends over the past five years. The cash conversion cycle represents the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

American Water Works has consistently maintained a negative cash conversion cycle over the years, indicating that the company's operations are efficient in generating cash. A negative cash conversion cycle means that the company is able to collect cash from customers before paying its suppliers, resulting in a net inflow of cash.

In 2021, the cash conversion cycle reached its lowest point at -1,669.23 days, suggesting that the company was able to convert its investments into cash even more quickly than in previous years. However, this metric increased slightly in 2022 and 2024, indicating a temporary decline in efficiency in converting investments to cash.

Overall, American Water Works' negative cash conversion cycle is a positive sign, as it reflects the company's ability to efficiently manage its working capital and liquidity. However, fluctuations in this metric should be further analyzed to understand the underlying reasons and their potential impact on the company's financial performance.