AZZ Incorporated (AZZ)

Over the past five years, AZZ Incorporated's liquidity ratios have shown some fluctuations.

1. Current ratio: The current ratio measures the company's ability to cover its short-term liabilities with its current assets. AZZ's current ratio has decreased from 2.62 in 2021 to 1.89 in 2024. While the ratio has consistently been above 1, indicating that the company has more current assets than current liabilities, the decreasing trend suggests a potential weakening in liquidity in recent years.

2. Quick ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. AZZ's quick ratio has also shown a decline over the years, dropping from 1.23 in 2021 to 0.83 in 2024. This indicates that the company may have a reduced ability to meet its short-term obligations using its most liquid assets.

3. Cash ratio: The cash ratio is the most conservative liquidity ratio, focusing solely on the company's ability to cover current liabilities with its cash and cash equivalents. AZZ's cash ratio has remained relatively stable over the years, hovering around 0.10, except for a dip to 0.02 in 2024. This suggests that the company may have limited cash reserves compared to its current liabilities in the most recent period.

In summary, AZZ Incorporated's liquidity ratios have shown some deterioration in recent years, particularly in the current and quick ratios. This trend raises potential concerns about the company's short-term liquidity position and its ability to meet its obligations as they come due. Management may need to address these issues to ensure the company's financial health and stability in the future.

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Additional liquidity measure

The cash conversion cycle of AZZ Incorporated has fluctuated over the past five years.

In Feb 2024, the cash conversion cycle was 46.69 days, showing a significant improvement compared to the previous year when it was 71.77 days. This indicates that the company has become more efficient in managing its cash, reducing the time it takes to convert its investments in inventory and accounts receivable into cash.

In contrast, the cash conversion cycle was exceptionally high in Feb 2022 at 213.39 days, reflecting challenges in converting inventory and receivables into cash within a reasonable timeframe. The following year saw a notable improvement, dropping to 149.74 days, suggesting that AZZ Incorporated made efforts to streamline its cash conversion process.

The cash conversion cycle in Feb 2020 was 64.61 days, showing a moderate level of efficiency in managing cash conversion, which was consistent with the company's performance in recent years.

Overall, fluctuations in AZZ Incorporated's cash conversion cycle reflect varying levels of effectiveness in managing working capital and liquidity. Improvements in the cash conversion cycle indicate better cash flow management, while longer cycles may signal operational inefficiencies that need to be addressed.