The Cheesecake Factory (CAKE)

The liquidity ratios of The Cheesecake Factory indicate a mixed picture over the years.

1. Current Ratio: The current ratio, a measure of the company's ability to meet its short-term obligations with its current assets, shows a decreasing trend from 0.58 in December 31, 2020, to 0.47 in December 31, 2024. This may raise concerns about the company's liquidity position, as the current assets may not be sufficient to cover its current liabilities.

2. Quick Ratio: The quick ratio, which excludes inventory from current assets, also demonstrates a declining trend from 0.33 in December 31, 2020, to 0.14 in December 31, 2024. This indicates a decreasing ability to pay off current liabilities without relying on inventory, further emphasizing liquidity challenges.

3. Cash Ratio: The cash ratio, which measures a company's ability to cover its current liabilities with cash and cash equivalents, shows a similar decreasing pattern from 0.26 in December 31, 2020, to 0.12 in December 31, 2024. This declining trend suggests a diminishing ability to meet short-term obligations solely with cash resources.

Overall, the liquidity ratios of The Cheesecake Factory indicate a deteriorating liquidity position over the years, as reflected in the decreasing current, quick, and cash ratios. Investors and stakeholders may closely monitor these ratios to assess the company's ability to manage its short-term financial obligations effectively.

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Additional liquidity measure

The cash conversion cycle of The Cheesecake Factory has shown some fluctuations over the past five years. As of December 31, 2020, the company's cash conversion cycle was 2.22 days, indicating that it took approximately 2.22 days for the company to convert its investments in inventory to cash inflows from customers. By the end of December 31, 2021, this cycle had increased slightly to 2.40 days. However, there was a significant improvement by December 31, 2022, where the cash conversion cycle decreased to -0.23 days - implying that The Cheesecake Factory could convert its investments into cash even before investing in inventory.

Subsequently, by the end of December 31, 2023, the cash conversion cycle increased to 0.94 days, indicating that the company took less than a day to convert its inventory investments into cash. As of December 31, 2024, the cycle increased to 2.31 days, signifying that it took The Cheesecake Factory approximately 2.31 days to convert investments in inventory to cash inflows.

Overall, the trend in the cash conversion cycle of The Cheesecake Factory reflects fluctuations in the efficiency of its working capital management over the years, with improvements and setbacks in the speed of converting inventory investments into cash receipts.