Chemed Corp (CHE)

Chemed Corp's liquidity ratios have exhibited some fluctuations over the years. The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown variability. In 2021, the current ratio dropped to a concerning level of 0.76, indicating potential liquidity issues. However, the ratio improved in subsequent years, with a notable increase to 1.61 in 2023, suggesting a strengthening liquidity position. By the end of 2024, the current ratio had declined slightly but remained at a healthy level of 1.38.

The quick ratio, also known as the acid-test ratio, provides a more stringent assessment of liquidity by excluding inventory from current assets. Chemed Corp faced a significant drop in the quick ratio in 2021, falling to an alarming 0.11. This raises concerns about the company's ability to meet its short-term obligations without relying on inventory. Subsequent years saw improvements in the quick ratio, reaching 0.85 in 2023 before declining to 0.62 by the end of 2024, indicating some volatility in the company's liquid assets.

The cash ratio, which focuses solely on a company's ability to cover its current liabilities with its cash and cash equivalents, mirrors the trend observed in the quick ratio for Chemed Corp. The cash ratio plummeted to 0.11 in 2021, signaling a potential cash crunch. However, the ratio recovered in the following years, peaking at 0.85 in 2023 before edging down to 0.62 by the end of 2024.

Overall, while Chemed Corp has experienced fluctuations in its liquidity ratios, the company showed improvements in its ability to meet short-term obligations in the latter years of the period analyzed. Monitoring these ratios can provide insights into the company's liquidity position and its ability to weather financial challenges.

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Additional liquidity measure

The cash conversion cycle of Chemed Corp has shown fluctuations over the years.

At the end of December 31, 2020, the cash conversion cycle was 1.88 days, indicating a relatively efficient management of cash flow. However, by the end of December 31, 2021, the cycle increased to 2.69 days, suggesting a slightly longer period for the company to convert its investments in inventory and other resources into cash.

Subsequently, the cash conversion cycle continued to rise, reaching 2.74 days as of December 31, 2022, and further increasing to 2.98 days by the end of December 31, 2023. This upward trend may indicate potential challenges in managing working capital effectively, impacting the company's liquidity.

Fortunately, Chemed Corp was able to improve its cash conversion cycle by the end of December 31, 2024, reducing it to 1.90 days. This improvement suggests more efficient management of inventory, receivables, and payables, which can lead to better cash flow performance and overall financial health.