Dorman Products Inc (DORM)

Dorman Products Inc's liquidity ratios indicate the company's ability to meet its short-term obligations. The current ratio, which measures the company's ability to pay its current liabilities with current assets, has fluctuated over the years. It decreased from 2.86 in 2020 to 1.62 in 2021, indicating a potential strain on short-term liquidity. However, the ratio improved in subsequent years, reaching 2.43 by the end of 2024, suggesting a stronger ability to cover current obligations.

In contrast, the quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Dorman Products Inc's quick ratio has been consistently low, ranging from 0.07 to 0.10 over the years. This implies that the company may have difficulty meeting its short-term obligations using only its most liquid assets.

The cash ratio, which specifically focuses on the company's ability to cover current liabilities with cash and cash equivalents, has also remained low and relatively stable, ranging from 0.07 to 0.10. This indicates that Dorman Products Inc relies less on cash reserves to meet its short-term obligations compared to its total current assets.

Overall, while the current ratio has shown improvement, the quick ratio and cash ratio suggest that Dorman Products Inc may have some challenges in meeting its short-term liquidity needs, particularly in situations where quick access to cash is required. Continuous monitoring and management of liquidity levels will be essential for the company to maintain financial stability and meet its commitments effectively.

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Additional liquidity measure

The cash conversion cycle for Dorman Products Inc has shown fluctuations over the past five years. As of December 31, 2020, the cash conversion cycle stood at 153.65 days, indicating that it took the company approximately 153 days to convert its investments in inventory and receivables into cash.

However, the cash conversion cycle increased significantly in the following years, reaching 220.07 days by December 31, 2021, and further climbing to 235.96 days by December 31, 2022. This extended cycle suggests that Dorman Products Inc took longer to convert its resources into cash, potentially indicating inefficiencies in managing inventory and collecting receivables during these periods.

The trend reversed slightly in the subsequent years, with the cash conversion cycle decreasing to 186.96 days by December 31, 2023, and then increasing again to 214.83 days by December 31, 2024. Despite these fluctuations, the company's management should focus on optimizing inventory levels and streamlining accounts receivable processes to improve cash flow efficiency and reduce the time taken to convert investments into cash.