CAVA Group, Inc. (CAVA)

The liquidity ratios of CAVA Group, Inc. over the observed period demonstrate notable fluctuations, reflecting shifts in the company's short-term financial health and liquidity management.

The current ratio, which measures the company's ability to meet its short-term obligations with its current assets, initially remained stable at 0.69 through September and December 2022. However, a significant decline occurred by March 2023, with the ratio dropping to 0.44, indicating a reduced capacity to cover current liabilities with current assets. Subsequently, the ratio experienced a marked improvement, surpassing the 3.0 threshold beginning in June 2023 and maintaining levels around 3.2 to 3.3 through the remainder of the period. This indicates a strong liquidity position from mid-2023 onward, reflecting increased current assets relative to current liabilities.

The quick ratio, which excludes inventory from current assets to assess immediate liquidity, followed a similar pattern. Initially stable at 0.56 during September and December 2022, it declined to 0.32 in March 2023, suggesting a diminished ability to settle short-term liabilities without relying on inventory sales. However, similar to the current ratio, the quick ratio surged past 3.0 from June 2023 onward and stabilized within that high range, implying a substantial improvement in the company's short-term liquidity and immediate asset quality.

The cash ratio, a more stringent measure indicating the proportion of current liabilities covered by cash and cash equivalents, remained steady at 0.46 through the end of 2022. It then exhibited a sharp increase to over 3.0 in June 2023, where it stayed relatively consistent until September 2023, and maintained levels around 2.7 to 2.8 through the subsequent periods. This substantial increase suggests that the company significantly increased its cash holdings relative to its current liabilities starting mid-2023, enhancing its capacity for immediate financial obligations.

Overall, the liquidity position of CAVA Group, Inc. experienced a period of stress prior to mid-2023, as evidenced by low ratios in early 2023, followed by a robust improvement in liquidity metrics from June 2023 onward. The ratios indicate an ongoing strong liquidity profile in recent periods, with the company maintaining high levels of current assets, liquid assets, and cash relative to its short-term liabilities, thereby suggesting a solid buffer in meeting upcoming financial obligations.

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Additional liquidity measure

The analysis of CAVA Group, Inc.'s cash conversion cycle (CCC) over the specified period reveals notable fluctuations and trends. Throughout the fiscal periods from September 2022 to March 2025, the CCC has predominantly remained negative, indicating that the company generally converts its inventory and receivables into cash more quickly than it pays its suppliers.

Starting at approximately -1.91 days at the end of September 2022, the CCC experienced a marginal decline to around -3.15 days by the end of March 2023, suggesting an improvement in cash flow efficiency. In the subsequent quarter ending June 30, 2023, the CCC shifted to slightly positive territory at 0.45 days, implying that the company temporarily experienced a period where payable turnover lagged behind receivable and inventory turnover.

However, the trend reverted to negative in the background, with the CCC returning to approximately -1.15 days at the end of December 2023 and worsening further during the first quarter of 2024 to about -1.97 days. The negative cycle persisted through mid-2024, with the CCC reaching approximately -3.77 days in September 2024, and maintaining a similar level at -3.79 days by December 2024. The subsequent quarter indicated a slight easing to about -3.04 days.

Overall, the pattern indicates that CAVA consistently maintains a very efficient cash conversion cycle, predominantly negative, which suggests quick inventory turnover and favorable receivables collection relative to its payables. The brief periods of positive CCC reflect short-term misalignments in payables and receivables management but do not alter the overarching trend of strong liquidity and operational efficiency. Continued monitoring of these fluctuations can provide insights into the company's working capital management and operational cycles.