American States Water Company (AWR)

The liquidity ratios of American States Water Company depict the company's ability to meet its short-term obligations.

1. Current Ratio: The current ratio, which measures the company's ability to cover short-term liabilities with current assets, has shown fluctuations over the years. It decreased from 1.33 in December 2020 to 0.89 in December 2021, indicating a potential liquidity strain. Despite a significant drop to 0.38 in December 2022, the ratio improved to 1.24 in December 2023 and slightly declined to 0.82 in December 2024, still above 1, suggesting sufficient current assets to cover current liabilities overall.

2. Quick Ratio: The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also exhibited a downward trend during the period. It decreased from 0.78 in December 2020 to 0.46 in December 2021, reflecting a potential liquidity challenge. The ratio further declined to 0.17 in December 2022 before recovering slightly to 0.43 in December 2023 and then to 0.33 in December 2024.

3. Cash Ratio: The cash ratio, which indicates the proportion of current liabilities covered by cash and cash equivalents, shows a similar declining trend, albeit at a lower level compared to the other ratios. It dropped from 0.32 in December 2020 to 0.06 in December 2021, and remained relatively stable around 0.05 to 0.09 in the subsequent years.

Overall, while the company experienced fluctuations in its liquidity ratios over the years, with some periods indicating potential liquidity concerns, the current and quick ratios generally improved towards the end of the period, suggesting a better ability to meet short-term obligations with current assets, excluding inventory. The cash ratio, although volatile, remained at a relatively low level, indicating a moderate cash position relative to current liabilities.

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Additional liquidity measure

The cash conversion cycle of American States Water Company has shown fluctuations over the past five years. As of December 31, 2020, the company had a negative cash conversion cycle of -68.50 days, indicating that it was able to convert its inventory and receivables into cash quickly. By December 31, 2021, the cash conversion cycle improved slightly to -63.27 days, continuing the trend of efficient cash conversion.

However, there was a significant change by December 31, 2022, where the cash conversion cycle decreased to -103.57 days, demonstrating an improvement in the company's ability to convert its resources into cash more efficiently. This positive trend was followed by a decrease to -62.88 days by December 31, 2023, reflecting the company's effective management of its working capital.

By the end of December 31, 2024, the cash conversion cycle increased slightly to -93.37 days, but still remained in negative territory. Overall, the company has demonstrated a consistent ability to convert its investments in inventory and receivables into cash rapidly, indicating strong operational efficiency and effective cash flow management.