Cleveland-Cliffs Inc (CLF)

The liquidity ratios for Cleveland-Cliffs Inc over the past five years indicate the company's ability to meet its short-term obligations.

1. Current ratio:
The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown some fluctuation over the years. In 2023, the current ratio decreased to 1.89 from 2.09 in 2022. While the current ratio remains above 1, indicating the company has more than enough current assets to cover its current liabilities, the decreasing trend suggests a potential decrease in liquidity compared to the previous 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. Cleveland-Cliffs Inc's quick ratio has also shown variation over the years, with a slight decrease from 0.65 in 2022 to 0.62 in 2023. The declining trend indicates a potential decrease in the company's ability to meet its short-term liabilities without relying on selling inventory.

3. Cash ratio:
The cash ratio measures the company's ability to cover its current liabilities with its cash and cash equivalents alone. Cleveland-Cliffs Inc's cash ratio has remained relatively low over the years, indicating that the company heavily relies on assets other than cash to meet its short-term obligations. The sharp decrease in the cash ratio from 1.05 in 2019 to 0.10 in 2023 may suggest a shift in the composition of the company's current assets towards less liquid assets.

In conclusion, while Cleveland-Cliffs Inc maintains a current ratio above 1, indicating a basic level of liquidity, the decreasing trend in both the current and quick ratios, coupled with the consistently low cash ratio, may raise concerns about the company's ability to meet its short-term obligations in a timely manner. Additional analysis of the company's cash management and working capital practices could provide further insights into its liquidity position.

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Additional liquidity measure

Cleveland-Cliffs Inc's cash conversion cycle has fluctuated over the past five years. Initially, in 2019, the company maintained a relatively efficient cash conversion cycle of 60.05 days, indicating that it took approximately two months to convert its investments in raw materials and production into cash receipts from sales.

However, there was a significant deterioration in the cash conversion cycle in 2020, reaching 242.51 days. This considerable increase suggests that Cleveland-Cliffs faced challenges in managing its working capital effectively, leading to a prolonged period between investing in inventory and receiving cash from sales.

In the following years, the company made improvements in its cash conversion cycle, gradually decreasing to 109.92 days in 2021 and further to 83.61 days in 2022. These reductions indicate that Cleveland-Cliffs enhanced its working capital management practices, resulting in a shorter time span to convert its resources into cash inflows.

Notably, by the end of 2023, the cash conversion cycle decreased to 72.36 days, demonstrating continued progress in streamlining the company's cash flow processes. Overall, Cleveland-Cliffs Inc's focus on optimizing its cash conversion cycle reflects its commitment to efficiently managing its working capital and enhancing its liquidity position over the analyzed period.