Duolingo Inc (DUOL)

Duolingo Inc's liquidity ratios demonstrate a strong ability to meet its short-term obligations and cover its current liabilities. The current ratio increased from 2.41 in 2020 to 5.20 in 2021, indicating a significant improvement in liquidity. However, this ratio decreased slightly to 3.84 in 2022, 3.24 in 2023, and 2.61 in 2024, suggesting a potential decrease in the company's ability to pay its short-term obligations in the later years.

The quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, also shows a positive trend. It increased from 1.83 in 2020 to 4.65 in 2021, indicating a strong ability to cover short-term liabilities without relying on inventory. The quick ratio decreased gradually to 3.35 in 2022, 2.70 in 2023, and 2.08 in 2024, but remained above 1, reflecting the company's continued ability to meet its short-term obligations with its most liquid assets.

The cash ratio, which focuses solely on cash and cash equivalents to cover current liabilities, mirrors the trend seen in the quick ratio. The cash ratio improved from 1.83 in 2020 to 4.65 in 2021, illustrating a robust cash position. Subsequently, the cash ratio declined to 3.35 in 2022, 2.70 in 2023, and 2.08 in 2024. Despite the decrease, the ratios indicate that Duolingo Inc maintains a healthy level of cash to meet its short-term financial commitments.

Overall, while there has been a slight decrease in the liquidity ratios in the later years, Duolingo Inc's liquidity position remains strong, allowing the company to efficiently manage its short-term financial obligations.

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Additional liquidity measure

Duolingo Inc's cash conversion cycle, a key metric reflecting the efficiency of its working capital management, has shown fluctuations over the years as follows:

- As of December 31, 2020, the cash conversion cycle was 107.82 days, indicating that the company took approximately 107 days to convert its investments in inventory and other resources into cash inflows.
- Surprisingly, by December 31, 2021, Duolingo managed to reduce its cash conversion cycle to 0.00 days, suggesting that it could efficiently convert its resources into cash flow within the same operating cycle, potentially improving liquidity and operational efficiency.
- However, by December 31, 2022, the cash conversion cycle increased significantly to 128.63 days, signaling that the company took longer to convert its resources back into cash, which could potentially strain liquidity and working capital management.
- Subsequently, as of December 31, 2023, and December 31, 2024, the cash conversion cycle returned to 0.00 days, possibly indicating a similar efficient conversion of resources into cash within the operating cycle observed in 2021.

Overall, the fluctuation in Duolingo Inc's cash conversion cycle suggests variations in its operational efficiency and working capital management over the specified years, highlighting the importance of monitoring and improving these metrics to ensure sustainable financial health.