Coty Inc (COTY)

The analysis of Coty Inc.’s liquidity ratios over the period from September 2020 to June 2025 reveals notable trends and shifts in its short-term liquidity position.

Current Ratio:
The current ratio experienced a significant decrease from 1.90 as of September 30, 2020, to a low of 0.66 on June 30, 2022. This decline indicates a declining ability to cover current liabilities with current assets during this period, moving from a comfortably above 1.0 position to below that threshold, implying increased liquidity risk. Following this trough, the ratio generally improved, reaching approximately 0.85 by December 2023, and fluctuating around that level through to June 2025. The recent upward trend suggests a modest strengthening of liquidity, although the ratio remains below 1.0, indicating that current liabilities continue to outstrip current assets.

Quick Ratio:
The quick ratio exhibits more volatility and overall weaker liquidity coverage relative to the current ratio. It started at 0.29 in September 2020, reflecting limited availability of liquid assets for immediate obligations. The ratio sharply increased to 0.77 by March 2021, suggesting a temporary improvement in liquidity. However, from mid-2021 onward, the quick ratio declined significantly, reaching negative values during September 2023 (-0.07), which indicates that liquid assets excluding inventories and other less liquid current assets were insufficient to cover current liabilities at that time. This negative figure signifies a critical liquidity concern. Subsequently, the ratio improved to positive values, around 0.31 in June 2024 and 0.35 by June 2025, yet remains below 0.5, implying continued limited liquidity on an immediate basis.

Cash Ratio:
The cash ratio, representing the most conservative measure of liquidity, remained relatively low throughout the observed period. It started at 0.15 in September 2020, increased modestly to around 0.62 in March 2021, but generally declined thereafter, falling below 0.20 during most of 2022 and 2023. The ratio oscillated around 0.09 to 0.12 from 2022 onward, indicating that Coty held a small portion of its current liabilities in cash and cash equivalents. The insufficient cash ratio underscores limited immediate liquidity coverage, with no marked improvements over time.

Summary:
Overall, Coty Inc.'s liquidity ratios reflect a deterioration beginning in 2020, with a significant decline in current and quick liquidity measures through 2021 and 2022. Although recent data shows some recovery, the ratios continue to suggest a constrained liquidity position, with current assets and cash equivalents only covering a limited portion of short-term liabilities. The persistent gap between current and quick ratios indicates a reliance on less liquid assets to meet current obligations, raising concerns about the company's short-term financial flexibility, particularly during periods of financial stress.

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Additional liquidity measure

The analysis of Coty Inc.'s cash conversion cycle (CCC) over the specified periods reveals a predominantly negative trend, indicative of the company's efficient management in converting its investments in inventory and receivables into cash flows. The data illustrates that for all observed periods, the CCC remains negative, with the Company consistently generating cash rather than tying up funds in operational cycles.

Starting from September 30, 2020, the CCC was recorded at -23.21 days. This figure increased in magnitude through subsequent quarters, reaching a low of -160.38 days on June 30, 2025. The negative values suggest that Coty Inc. typically receives cash from sales well ahead of the time it incurs payments to suppliers and holds inventories, implying a strong cash position relative to its operational cycle.

Periodically, the cycle extends significantly, with notable dips on December 31, 2021, when it reached -119.75 days, and again on June 30, 2025, at -160.38 days. The lengthening of the cycle may reflect improved receivables collection, extended payable periods, or a strategic management of inventory and payables that enhances liquidity.

However, some fluctuations are observed, such as a partial reversal to -47.80 days by September 30, 2024, from a prior peak of -118.47 days on December 31, 2022. The reversal indicates a shift in working capital management, potentially due to changes in supplier terms, receivables policies, or inventory turnover rates.

Overall, Coty Inc.'s consistently negative cash conversion cycle underscores its operational efficiency in managing cash flows, enabling the company to operate with a net cash inflow from its operating cycle. The significant variations suggest active management strategies aimed at optimizing working capital, though the extreme swings warrant close monitoring to sustain liquidity and operational flexibility going forward.