Best Buy Co. Inc (BBY)

Based on the liquidity ratios of Best Buy Co. Inc over the past five years, there are some notable trends to observe.

1. Current Ratio:
- The current ratio measures a company's ability to cover its short-term obligations with its short-term assets. Best Buy's current ratio has displayed fluctuations over the years, ranging from a low of 0.98 to a high of 1.19. In the most recent period, the current ratio stands at 1.00, indicating that the company may have just enough current assets to cover its current liabilities.

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. Best Buy's quick ratio has shown a decreasing trend over the years, from 0.63 in 2021 to 0.30 in the most recent period. This suggests that Best Buy may have limited ability to meet its short-term obligations without relying on inventory.

3. Cash Ratio:
- The cash ratio is the most conservative liquidity measure, focusing solely on a company's ability to cover its short-term liabilities with cash and cash equivalents. Best Buy's cash ratio has also declined over the years, from 0.53 in 2021 to 0.18 in the current period. This indicates that Best Buy holds a lower proportion of cash compared to its short-term liabilities.

Overall, the downward trends in the quick ratio and cash ratio suggest that Best Buy's liquidity position may be weakening over the years. This could signal potential challenges in meeting short-term obligations without relying on inventory or other current assets. Further analysis of the company's cash management and working capital practices may be warranted to address these liquidity concerns.

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See also:

Best Buy Co. Inc Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of Best Buy Co. Inc has fluctuated significantly over the past five years. In fiscal year 2024, the company has a cash conversion cycle of 11.35 days, representing the number of days it takes for Best Buy to convert its investments in inventory and other resources into cash flows from sales. This indicates that in this period, Best Buy took approximately 11.35 days to sell its inventory and collect cash from customers.

Compared to the previous year, where the cash conversion cycle was 3.51 days, the increase in the cycle indicates a longer time taken by the company to convert its resources into cash. In fiscal year 2022, the cash conversion cycle was slightly negative at -0.28 days, suggesting that Best Buy was able to generate cash from its operations before paying its suppliers, theoretically benefiting from a negative cash conversion cycle.

However, in fiscal year 2021 and 2020, the cash conversion cycle was negative at -5.41 days and 8.37 days, respectively, indicating that the company was able to convert its investments into cash relatively quickly.

Overall, the fluctuation in the cash conversion cycle over the years indicates variations in Best Buy's efficiency in managing its working capital, inventory turnover, and accounts receivable collection. It is essential for the company to monitor and optimize its cash conversion cycle to ensure optimal working capital management and sustainable cash flows.