Eastman Chemical Company (EMN)

The liquidity ratios of Eastman Chemical Company over the past few years show variations in its ability to meet short-term obligations.

1. Current Ratio: Eastman Chemical Company's current ratio has been fluctuating between 1.16 to 2.06. A current ratio above 1 indicates that the company has more current assets than current liabilities, with a higher ratio being more favorable. The company's current ratio has generally been above 1, signifying that it has the ability to cover its short-term obligations.

2. Quick Ratio: The quick ratio measures the company's ability to meet short-term obligations with its most liquid assets. Eastman's quick ratio has ranged from 0.14 to 0.38. A quick ratio above 1 is considered healthy, as it indicates the company can meet its short-term liabilities without relying on the sale of inventory. The company's quick ratio has generally been below 1, suggesting a reliance on inventory to meet short-term obligations.

3. Cash Ratio: The cash ratio compares a company's cash and cash equivalents to its current liabilities. Eastman Chemical's cash ratio has varied from 0.14 to 0.38. A higher cash ratio indicates a stronger ability to cover short-term liabilities with cash on hand. Similar to the quick ratio, the cash ratio has generally been below 1, implying a limited capacity to cover short-term obligations solely with cash.

In summary, Eastman Chemical Company has maintained a current ratio above 1, indicating a sufficient level of current assets to cover short-term liabilities. However, the quick ratio and cash ratio being below 1 suggest a reliance on inventory and lack of cash reserves to meet immediate obligations, which may pose a risk in case of unforeseen circumstances or tight liquidity conditions. Hence, prudent management of working capital and liquidity should be a focus area for the company to ensure financial stability.

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Additional liquidity measure

The cash conversion cycle of Eastman Chemical Company has shown fluctuations over the periods provided. The cash conversion cycle represents the number of days it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

From March 2020 to December 2024, the company's cash conversion cycle ranged from a low of 68.38 days (September 30, 2023) to a high of 102.65 days (December 31, 2024). Generally, a lower cash conversion cycle indicates that the company is able to quickly convert its investments into cash, which can be a positive sign of operational efficiency. On the other hand, a higher cash conversion cycle may suggest inefficiencies in inventory management or sales collection processes.

It's worth noting that the cash conversion cycle increased significantly towards the end of the period, with the cycle exceeding 100 days in the last quarter of 2024. This may raise concerns about the company's ability to efficiently manage its working capital and convert resources into cash in a timely manner.

Overall, it is important for Eastman Chemical Company to closely monitor its cash conversion cycle trends, identify the factors contributing to the fluctuations, and implement strategies to optimize working capital management and improve cash flow efficiency.