Darling Ingredients Inc (DAR)

Darling Ingredients Inc's liquidity ratios show fluctuations over the years. The current ratio, which measures the company's ability to cover short-term obligations with current assets, has generally been above 1, indicating that the company has sufficient current assets to cover its current liabilities. The ratio increased from 1.46 in 2020 to 1.86 in 2023, suggesting improving liquidity. However, there was a slight decrease in 2024 to 1.38, which is still above the acceptable threshold of 1.

The quick ratio, a more stringent measure of liquidity as it excludes inventory from current assets, shows a downward trend from 0.73 in 2020 to 0.36 in 2024. This indicates that the company may have more difficulty meeting its short-term obligations without relying on selling inventory.

The cash ratio, which indicates the proportion of current liabilities that could be covered by cash and cash equivalents, shows fluctuations but an overall improving trend. The ratio increased from 0.12 in 2020 to 0.34 in 2024, signaling an increasing ability to cover short-term obligations with cash.

In summary, Darling Ingredients Inc's liquidity position appears reasonable, as indicated by the current ratio consistently above 1. However, the decreasing trend in the quick ratio warrants attention, suggesting a potential reliance on inventory to meet short-term obligations. The increasing cash ratio indicates a strengthening ability to cover short-term liabilities using cash reserves, which is a positive sign for liquidity management.

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Additional liquidity measure

The cash conversion cycle of Darling Ingredients Inc has shown fluctuations over the years. It decreased from 58.63 days on December 31, 2020, to 49.73 days on December 31, 2021, indicating an improvement in the company's efficiency in converting its resources into cash.

However, the cycle increased slightly to 52.10 days on December 31, 2022, before experiencing a significant decrease to 20.02 days on December 31, 2023, and further to 16.48 days on December 31, 2024. These sharp reductions suggest that Darling Ingredients Inc has been managing its working capital more effectively, resulting in quicker conversion of inventory into cash.

Overall, the downward trend in the cash conversion cycle signifies that the company has been making strides in optimizing its operations and cash flow management, which can potentially lead to improved liquidity and financial performance in the future.