Edison International (EIX)

Edison International's liquidity ratios, specifically the current ratio, quick ratio, and cash ratio, provide insights into the company's ability to meet its short-term financial obligations.

1. Current Ratio: The current ratio measures a company's ability to pay off its current liabilities with its current assets. From March 31, 2020, to December 31, 2024, Edison International's current ratio fluctuated, starting at a low of 0.49 in December 2020 and reaching a peak of 1.03 in June 2024. The current ratio shows an increasing trend since the end of 2021, surpassing the ideal threshold of 1.00 in the last reported period (March 31, 2024), indicating that the company possesses more current assets than current liabilities.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, is a more stringent measure of liquidity as it only considers the most liquid assets (cash and accounts receivable) to cover current liabilities. Edison International's quick ratio shows significant variability over the same period, dropping to negative values in March 2024 before recovering to 0.06 in June 2024. The quick ratio generally remained below 1.00, suggesting the company may have difficulty covering its short-term obligations with its liquid assets alone.

3. Cash Ratio: The cash ratio is the most conservative of the three liquidity ratios, focusing solely on a company's ability to cover its current liabilities with its cash and cash equivalents. Edison International's cash ratio follows a similar pattern to the quick ratio, experiencing fluctuations and financial instability, with a concerning dip to -0.42 in March 2024. However, by June 2024, the cash ratio improved to 0.06, indicating a modest increase in the company's ability to fulfill its immediate obligations with cash on hand.

In conclusion, while Edison International's current ratio improved over the reported period and exceeded the recommended threshold in the latest period, there are concerns regarding the quick and cash ratios, which indicate a potential liquidity risk. It is essential for the company to continue monitoring and managing its short-term liquidity position to ensure it can meet its financial obligations efficiently.

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Additional liquidity measure

The cash conversion cycle for Edison International has fluctuated over the periods analyzed. The cash conversion cycle, which represents the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales, is an important indicator of operational efficiency.

From March 31, 2020, to December 31, 2024, Edison International's cash conversion cycle varied between 15.06 days and 19.99 days. A lower cash conversion cycle indicates that the company is able to efficiently manage its working capital, while a higher cycle suggests inefficiencies in managing cash flows.

Overall, the trend in the cash conversion cycle for Edison International shows some variability, with periods of decrease and increase. Understanding the reasons behind these fluctuations, whether related to changes in inventory management, accounts receivable collection, or accounts payable timings, is essential for assessing the company's financial performance and efficiency in managing its operating cycle.