DigitalOcean Holdings Inc (DOCN)

DigitalOcean Holdings Inc's liquidity ratios have shown a declining trend over the years. The current ratio, which measures the company's ability to meet short-term obligations with current assets, has decreased significantly from 30.39 in December 2021 to 2.45 in December 2024. This indicates a potential decrease in 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, has also declined from 30.10 in December 2021 to 2.27 in December 2024. This suggests that the company may be less able to meet its short-term liabilities without relying on inventory.

Moreover, the cash ratio, which is the most stringent measure of liquidity as it considers only cash and cash equivalents, has decreased from 29.42 in December 2021 to 1.94 in December 2024. This indicates a substantial reduction in the company's ability to cover its short-term obligations with its readily available cash resources.

Overall, the decreasing trend in all three liquidity ratios suggests that DigitalOcean Holdings Inc's short-term liquidity position has weakened over the years, potentially indicating a need for management to closely monitor and improve the company's liquidity management to ensure financial stability.

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Additional liquidity measure

DigitalOcean Holdings Inc's cash conversion cycle has displayed significant fluctuations over the past few years.

As of December 31, 2021, the company's cash conversion cycle stood at 6.66 days, indicating that it took approximately 6.66 days for DigitalOcean to convert its investments in raw materials and other inputs into cash from sales.

By December 31, 2022, the cash conversion cycle had decreased to -2.31 days. A negative cash conversion cycle suggests that the company is able to collect cash from customers before paying its suppliers, essentially operating with negative working capital.

However, by December 31, 2023, the cash conversion cycle had increased substantially to 27.87 days, signaling a potential delay in the company's ability to convert its investments into cash.

By December 31, 2024, the cash conversion cycle sharply decreased to -29.40 days, indicating a return to a negative cycle where DigitalOcean is again operating with negative working capital.

These fluctuations in the cash conversion cycle suggest that DigitalOcean Holdings Inc has experienced variability in its efficiency of converting investments into cash over the analyzed period. Further analysis of the company's operations and management of working capital may be warranted to assess the reasons behind these fluctuations and their implications for the company's financial performance.