Cadence Design Systems Inc (CDNS)

Cadence Design Systems Inc's liquidity ratios show a mixed performance over the years.

1. Current Ratio: The company's current ratio has fluctuated between 1.24 to 2.93 over the years, reflecting the firm's ability to cover its short-term obligations with its current assets. The current ratio decreased from 1.86 in 2020 to 1.77 in 2021 before dropping more significantly to 1.27 in 2022. There was a slight further decline to 1.24 in 2023, indicating potential challenges in meeting short-term liabilities. However, a significant improvement was observed in 2024, with the current ratio surging to 2.93, suggesting improved liquidity to meet short-term obligations.

2. Quick Ratio: The quick ratio, which provides a more stringent assessment of liquidity by excluding inventories from current assets, also exhibited fluctuations. The quick ratio declined from 1.17 in 2020 to 1.13 in 2021 and further dropped to 0.66 in 2022, signaling potential difficulties in meeting immediate obligations without relying on the sale of inventories. A slight improvement was seen in 2023 with a quick ratio of 0.72, although it remained relatively low. A significant boost in liquidity was witnessed in 2024, with the quick ratio reaching 2.03, indicating a stronger ability to meet short-term liabilities without relying on inventory liquidation.

3. Cash Ratio: The cash ratio, which is the most stringent measure of liquidity as it only considers cash and cash equivalents, followed a similar trend to the quick ratio. The cash ratio decreased from 1.17 in 2020 to 1.13 in 2021 and dropped to 0.66 in 2022, highlighting potential challenges in meeting immediate obligations with available cash. The cash ratio slightly improved to 0.72 in 2023 before experiencing a significant upsurge to 2.03 in 2024, indicating a notable enhancement in the company's ability to cover short-term obligations using cash and cash equivalents.

In conclusion, while Cadence Design Systems Inc experienced fluctuations in its liquidity ratios over the years, the significant improvement in 2024 across all three ratios suggests an enhanced liquidity position that may help the company better navigate short-term financial challenges. However, continued monitoring of liquidity ratios is advisable to ensure the company's ability to meet its ongoing obligations efficiently.

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See also:

Cadence Design Systems Inc Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of Cadence Design Systems Inc has shown fluctuations over the years as follows:

- As of December 31, 2020, the cash conversion cycle was 90.75 days, indicating that the company took approximately 90.75 days to convert its investments in inventory and other resources into cash inflows from sales.
- By December 31, 2021, the cash conversion cycle increased to 137.58 days, suggesting a lengthening of the time it took for Cadence Design Systems Inc to generate cash from its operational activities.
- In the following year, the cash conversion cycle improved slightly to 125.72 days as of December 31, 2022, indicating a reduction in the time needed to convert resources into cash.
- However, by December 31, 2023, the cash conversion cycle extended to 152.41 days, signifying a deterioration in the company's efficiency in managing its working capital.
- The most significant jump occurred by December 31, 2024, with the cash conversion cycle soaring to 446.01 days, which could be a cause for concern as it indicates a substantial delay in transforming investments into cash flows.

The increasing trend in the cash conversion cycle might raise worries about Cadence Design Systems Inc's working capital management and liquidity position, as a more extended cycle may require the company to tie up funds in operational activities for a longer period before realizing cash inflows. Further analysis of the company's operational efficiency and working capital management strategies may be necessary to address this concern effectively.