Emerson Electric Company (EMR)

The liquidity ratios of Emerson Electric Co. indicate the company's ability to meet its short-term obligations and manage its current liabilities using its current assets.

The current ratio, which measures the company's ability to pay its short-term obligations with its current assets, shows a positive trend over the past five years, increasing from 1.19 in 2019 to 2.75 in 2023. This implies that the company has significantly improved its ability to cover its short-term liabilities with its current assets.

The quick ratio, which provides a more stringent measure of liquidity by excluding inventories from current assets, also demonstrates an upward trend, rising from 0.88 in 2019 to 2.35 in 2023. This signifies that the company has strengthened its ability to cover its short-term liabilities with its most liquid assets.

The cash ratio, which represents the company's ability to pay off its current liabilities using only its cash and cash equivalents, has also shown an improving trend, increasing from 0.38 in 2019 to 1.85 in 2023.

Overall, the liquidity ratios indicate that Emerson Electric Co. has significantly enhanced its ability to meet its short-term obligations, suggesting improved financial health and a strengthened liquidity position over the past five years.

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See also:

Emerson Electric Company Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of Emerson Electric Co. has exhibited fluctuations over the past five years. In the fiscal year ending September 30, 2023, the cash conversion cycle extended to 95.09 days, reflecting a significant increase from the preceding year. This indicates a longer period in which the company's resources are tied up in inventory and receivables before being converted into cash.

Comparatively, in the fiscal year ending September 30, 2022, the cash conversion cycle was 61.13 days, presenting a shorter duration in the conversion of resources into cash when compared to the following year. However, the cycle for that year was surpassing the performance of the company in the fiscal year ending September 30, 2021, where it recorded a cash conversion cycle of 57.48 days.

The trend continues as the cash conversion cycle for the fiscal year ending September 30, 2020, was 68.88 days, indicating a period slightly longer than the fiscal year ending September 30, 2019, where the cycle was 59.51 days. This suggests that Emerson Electric Co. faced challenges in managing its working capital efficiently in the most recent fiscal year, leading to a prolonged cash conversion cycle.

It is important for the company to closely monitor and manage its inventory and receivables to improve the efficiency of its cash conversion cycle, as a shorter cycle indicates the company is able to generate cash more quickly from its operating activities, which is ultimately beneficial for its liquidity and overall financial performance.