Cars.com Inc (CARS)

The current ratio of Cars.com Inc has fluctuated over the years, starting at a relatively high level of 2.96 as of March 31, 2020, and gradually decreasing to 1.22 by December 31, 2023. This indicates a decreasing ability to cover short-term obligations with current assets. However, there was a slight improvement to 1.83 by the end of December 31, 2024.

In contrast, the quick ratio follows a similar trend with larger fluctuations. It started at 1.91 on March 31, 2020, dropped significantly to 0.18 by March 31, 2023, and then recovered to 0.43 by December 31, 2024. The quick ratio provides a more stringent measure of liquidity as it excludes inventory from current assets.

The cash ratio displays similar patterns to the quick ratio, reflecting a greater focus on the most liquid assets. The ratio ranged from 1.91 to 0.27 from March 31, 2020, to December 31, 2023, before slightly improving to 0.43 by December 31, 2024. This shows the company's ability to cover its current liabilities with only cash and cash equivalents.

Overall, Cars.com Inc's liquidity ratios demonstrate some volatility over the years, with fluctuations in the ability to meet short-term obligations using different levels of current assets. The company may need to monitor and manage its liquidity position to ensure it can meet its financial obligations as they come due.

---

Additional liquidity measure

The cash conversion cycle is a metric that represents the time it takes for a company to convert its investment in inventory and other resources into cash flows from sales. It is calculated by adding the average number of days inventory is held to the average number of days it takes to collect receivables, and then subtracting the average number of days it takes to pay suppliers.

Analyzing the trend of Cars.com Inc's cash conversion cycle over the years, we observe fluctuations in the cycle duration. In March 2020, the company had a cash conversion cycle of 29.54 days, which decreased to 23.33 days by December 2020 before increasing to 35.47 days in March 2023. The cycle seems to be affected by changes in inventory management, accounts receivable collection efficiency, and payment terms with suppliers.

Efficiency in managing inventory, collecting receivables, and negotiating favorable payment terms with suppliers are crucial factors in optimizing the cash conversion cycle. A shorter cycle indicates better liquidity and working capital management, as the company can generate cash flows more efficiently from its operations.

Cars.com Inc should focus on enhancing its inventory turnover, streamlining accounts receivable processes, and negotiating better payment terms with suppliers to reduce the cash conversion cycle and improve overall working capital efficiency. Regular monitoring and analysis of this metric can help the company identify opportunities for improvement and maintain healthy cash flows.