Duolingo Inc (DUOL)

Duolingo Inc's liquidity ratios indicate its ability to meet short-term obligations efficiently. The current ratio has decreased from 5.20 in 2021 to 3.24 in 2023, which may suggest a slight weakening in the company's ability to cover its short-term liabilities with its current assets. However, the current ratio remains above 1, indicating a healthy level of liquidity.

The quick ratio also exhibits a declining trend, decreasing from 4.93 in 2021 to 3.02 in 2023. This ratio excludes inventory from current assets, providing a more conservative measure of liquidity. While the quick ratio is lower than the current ratio, it still suggests that Duolingo has sufficient liquid assets to cover its short-term obligations.

Furthermore, the cash ratio has similarly decreased over the years, falling from 4.65 in 2021 to 2.70 in 2023. This ratio measures the company's ability to cover its current liabilities with cash and cash equivalents alone. Although the cash ratio is the lowest among the three liquidity ratios, it still indicates a respectable level of liquidity.

Overall, while there has been a downward trend in Duolingo Inc's liquidity ratios over the years, the company still maintains solid liquidity positions based on the current, quick, and cash ratios. It is important for the company to monitor these ratios to ensure sufficient liquidity to meet its short-term obligations effectively.

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Additional liquidity measure

The cash conversion cycle of Duolingo Inc has fluctuated over the past three years. In 2021, the company had a very efficient cash conversion cycle of 7.02 days, indicating that it was able to quickly convert its investments in inventory and other resources into cash from sales. However, in 2022, the cash conversion cycle increased significantly to 170.47 days, suggesting a prolonged time taken to convert investments into cash, potentially due to issues such as slow sales, inventory management problems, or delayed payment collections.

In 2023, Duolingo Inc managed to improve its cash conversion cycle significantly to 54.86 days compared to the previous year, but it still remains higher than the level in 2021. This indicates that the company has made some progress in managing its working capital and cash flows more effectively, but there may still be room for further improvement.

Overall, Duolingo Inc's cash conversion cycle analysis demonstrates the company's ability to efficiently manage its working capital and liquidity, with efforts to optimize cash conversion processes visible in the fluctuation of the cycle over the past three years. Additional focus on streamlining operations and tightening cash flow management could potentially lead to further improvements in the future.