DigitalOcean Holdings Inc (DOCN)

DigitalOcean Holdings Inc's liquidity ratios have experienced a significant decline over the past three years. The current ratio, which measures the company's ability to meet short-term obligations with its current assets, decreased from 30.39 in 2021 to 5.72 in 2022 and further to 2.61 in 2023. This declining trend indicates a potential strain on the company's short-term liquidity position.

Similarly, the quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, also saw a sharp decline from 30.10 in 2021 to 5.55 in 2022 and further to 2.46 in 2023. This indicates that DigitalOcean Holdings Inc may have a reduced ability to cover its short-term liabilities with its most liquid assets.

The cash ratio, which focuses solely on cash and cash equivalents to cover current liabilities, also exhibited a decreasing trend from 29.42 in 2021 to 5.22 in 2022 and 2.14 in 2023. This suggests that the company's reliance on cash to meet its short-term obligations has decreased over the years.

Overall, the decreasing liquidity ratios for DigitalOcean Holdings Inc over the past three years raise concerns about its ability to meet its short-term financial obligations as efficiently as it did in the past. Further analysis of the company's cash management strategies and working capital management may be warranted to address these liquidity challenges.

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Additional liquidity measure

The cash conversion cycle (CCC) of DigitalOcean Holdings Inc has fluctuated significantly over the past three years. In 2021, the company had a CCC of 6.66 days, indicating that it took approximately 6.66 days to convert its investments in inventory and other resources into cash from sales. This was a reasonable CCC which suggested efficient management of working capital.

However, in 2022, the company managed to achieve a negative CCC of -2.31 days, which is unusual but can be seen as a positive sign. A negative CCC suggests that the company was able to collect cash from customers before paying its suppliers, leading to a cash inflow cycle. This could be due to effective management of accounts receivable and accounts payable.

In 2023, the CCC increased to 27.67 days, indicating a reversal in trend and a potential inefficiency in managing working capital. This increase could be due to a slower collection of accounts receivable or a longer time taken to convert inventory into sales.

Overall, while the negative CCC in 2022 was a positive indicator, the significant increase in 2023 suggests a need for DigitalOcean Holdings Inc to focus on optimizing its cash conversion cycle to ensure efficient management of working capital and liquidity.