Cognizant Technology Solutions Corp Class A (CTSH)

Based on the provided data, let's analyze the liquidity ratios of Cognizant Technology Solutions Corp Class A:

1. Current Ratio:
- The current ratio measures the company's ability to cover its short-term liabilities with its current assets.
- Cognizant's current ratio has shown a positive trend over the years, increasing from 1.94 in 2020 to 2.09 in 2024.
- The current ratio surpasses the industry benchmark of 1, indicating that the company has a strong ability to meet its short-term obligations.

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.
- Cognizant's quick ratio has also demonstrated an upward trend, rising from 1.64 in 2020 to 1.76 in 2024.
- The company maintains a quick ratio above 1, indicating that it can meet its short-term obligations without relying heavily on inventory.

3. Cash Ratio:
- The cash ratio is the most conservative liquidity ratio, focusing solely on the company's ability to cover its current liabilities with cash and cash equivalents.
- Cognizant's cash ratio has fluctuated slightly over the years, ranging from 0.63 to 0.79.
- While the cash ratio is lower than the current and quick ratios, it suggests that the company has sufficient cash on hand to cover its immediate liabilities.

In summary, Cognizant Technology Solutions Corp Class A has displayed a consistently improving liquidity position over the years, with current, quick, and cash ratios all indicating a strong ability to meet short-term obligations.

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Additional liquidity measure

The cash conversion cycle of Cognizant Technology Solutions Corp Class A has shown a gradual increase over the past five years. In December 2020, the company's cash conversion cycle was 57.90 days, which has steadily increased to 67.70 days by December 2024. This indicates that the company is taking longer to convert its investments in inventory and accounts receivable into cash.

The increasing trend in the cash conversion cycle may suggest potential inefficiencies in the company's working capital management. A longer cash conversion cycle could tie up more of the company's cash flow in operations, potentially impacting liquidity and overall financial health.

It is important for Cognizant Technology Solutions Corp Class A to closely monitor and manage its cash conversion cycle to ensure optimal use of its resources and to maintain a healthy level of working capital. Strategies such as improving inventory management, optimizing accounts receivable collection, and streamlining the payment process to suppliers could help in reducing the cash conversion cycle and enhancing overall financial performance.