Churchill Downs Incorporated (CHDN)

Based on the provided data, let's analyze the liquidity ratios of Churchill Downs Incorporated:

1. Current Ratio:
- The current ratio measures the company's ability to meet its short-term obligations with its current assets. A ratio above 1 indicates that the company has more current assets than current liabilities.
- The current ratio for Churchill Downs shows a significant improvement from 0.55 in 2020 to 1.27 in 2021 but declined to 0.55 in 2022 and further to 0.53 in 2023. However, it drastically improved to 4.59 in 2024, indicating a strong increase in current assets relative to current liabilities in that year.

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.
- Churchill Downs' quick ratio shows fluctuations over the years, decreasing from 1.64 in 2020 to 0.74 in 2021, and further declining to 0.21 in 2022 and 0.19 in 2023. However, there was a significant improvement to 1.95 in 2024, indicating a more favorable position to meet short-term obligations without relying on inventory.

3. Cash Ratio:
- The cash ratio specifically focuses on the company's ability to cover its current liabilities with its cash and cash equivalents.
- Similarly, Churchill Downs' cash ratio follows a similar trend as the quick ratio, with a decrease from 1.64 in 2020 to 0.74 in 2021 and further to 0.21 in 2022 and 0.19 in 2023. The ratio improved notably to 1.95 in 2024, indicating a stronger ability to meet short-term obligations directly from cash reserves.

In overall assessment, Churchill Downs demonstrated fluctuating liquidity ratios over the years, with a notable improvement in 2024. It is crucial for the company to maintain a healthy liquidity position to ensure it can meet its short-term obligations efficiently.

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Additional liquidity measure

The cash conversion cycle of Churchill Downs Incorporated has exhibited a downward trend over the past five years. Starting at 22.74 days as of December 31, 2020, it decreased to 2.36 days by December 31, 2024. This indicates that the company has been able to more efficiently convert its investments in inventory and accounts receivable into cash.

A lower cash conversion cycle is generally seen as positive as it signifies that the company is able to generate cash quickly from its operating activities. In the case of Churchill Downs Incorporated, the decreasing trend indicates an improvement in managing its working capital and liquidity position over the years.

The reduction in the cash conversion cycle may be attributed to more effective inventory management, faster collection of accounts receivable, or better negotiation of payment terms with suppliers. Overall, the company's ability to shorten its cash conversion cycle suggests improved efficiency and financial performance.