The Clorox Company (CLX)

The Clorox Company’s liquidity ratios over the period from June 30, 2021, to June 30, 2025, exhibit notable trends and shifts in the company’s capacity to meet short-term obligations.

The current ratio, representing the company's ability to cover current liabilities with current assets, shows a gradual improvement from 0.89 in 2021 to 0.97 in 2022, followed by a slight decrease to 0.95 in 2023. Subsequently, the ratio increases to 1.03 in 2024, indicating that at that point, the company’s current assets slightly surpassed its current liabilities, suggesting improved liquidity. However, in 2025, the ratio declines to 0.84, falling below the 1.0 threshold, signaling a potential weakening in short-term financial health and a lesser margin of safety in current asset coverage.

The quick ratio, which excludes inventories and other less liquid current assets to measure immediate liquidity, follows a generally positive trend. It increases from 0.45 in 2021 to a peak of 0.55 in 2023. After this peak, it marginally rises to 0.57 in 2024 and then decreases to 0.51 in 2025. Throughout the period, the quick ratio remains below 1.0, implying that the company’s most liquid assets do not fully cover current liabilities at any point, although the ratios show improving liquidity in 2022 and 2023 followed by a slight decline.

The cash ratio, the most conservative measure of liquidity, indicates the proportion of current liabilities covered solely by cash and cash equivalents. It declines from 0.16 in 2021 to 0.10 in 2022, then increases to 0.19 in 2023 before decreasing again to 0.13 in 2024 and further down to 0.09 in 2025. These fluctuations demonstrate variability in the company’s immediate cash position relative to its short-term obligations. The overall trend suggests a relatively low level of cash holdings to cover current liabilities directly, with a general decline over the analyzed period.

In aggregate, the liquidity ratios reflect a company that experienced initial improvement in liquidity from 2021 to 2024, reaching and surpassing the breakeven point in the current ratio for 2024. However, the subsequent decline in 2025 raises concerns about liquidity adequacy, especially considering the persistently low quick and cash ratios. This might indicate challenges in liquid asset management or changes in current liabilities and asset composition that could impact the company’s ability to meet short-term obligations without additional financing or asset liquidation.

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Additional liquidity measure

The analysis of The Clorox Company's cash conversion cycle (CCC) over the specified periods reveals significant fluctuations and trends. As of June 30, 2021, the CCC was approximately 14.35 days, indicating that on average, the company took around two weeks to convert its investments in inventory and receivables into cash, after discounting the period of its payables.

By June 30, 2022, the CCC increased to approximately 18.57 days. This suggests a lengthening of the cycle, potentially attributable to longer inventory holding periods, delayed receivables collection, or a combination of both. Such an increase could imply less efficient cash management or changes in operational practices during this period.

Subsequently, a notable improvement occurred by June 30, 2023, when the CCC decreased sharply to approximately 7.51 days. This reduction indicates a more efficient cycle, with faster turnover of inventory and receivables relative to payables, which enhances liquidity and reduces working capital requirements. The trend continued into June 30, 2024, with the CCC remaining stable at approximately 7.52 days, suggesting consistent operational efficiency and effective cash management during this year.

However, by June 30, 2025, the CCC increased again to approximately 12.63 days. Although still below the 2021 and 2022 levels, this rise signals a modest softening in operational efficiency, perhaps due to shifts in receivables collection, inventory strategies, or supplier terms.

Overall, the company's covenant with the cash conversion cycle has exhibited variability over the analyzed period, characterized by an initial increase, a subsequent significant decrease, and then a moderate rise. These fluctuations reflect changes in operational efficiencies, working capital management strategies, and possibly external market dynamics influencing inventory and receivables management. The overall trend from the beginning to the end of the period suggests periods of operational improvement interspersed with adjustments that temporarily lengthen the cycle, emphasizing the importance of continuous cash flow optimization efforts.