ESCO Technologies Inc (ESE)

The liquidity ratios of Esco Technologies, Inc. provide valuable insights into the company's ability to meet its short-term obligations. Let's analyze the current ratio, quick ratio, and cash ratio over the past five years.

1. Current Ratio:
The current ratio measures the company's ability to pay its short-term liabilities with its short-term assets. Esco Technologies, Inc.'s current ratio has remained relatively stable over the past five years, ranging from 1.68 to 1.97. In 2023, the current ratio stands at 1.85, indicating that the company has $1.85 in current assets for every $1 of current liabilities. This suggests a healthy liquidity position, as the company has maintained a comfortable margin of current assets to cover its short-term obligations.

2. Quick Ratio:
The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Esco Technologies, Inc.'s quick ratio has also shown stability over the past five years, ranging from 1.15 to 1.46. In 2023, the quick ratio is 1.26, suggesting that the company has $1.26 in highly liquid current assets available to cover each dollar of current liabilities. This indicates that Esco Technologies, Inc. has a sufficient level of highly liquid assets to meet its short-term obligations without relying on inventory sales.

3. Cash Ratio:
The cash ratio measures the company's ability to cover its short-term liabilities with its cash and cash equivalents alone. Esco Technologies, Inc.'s cash ratio has fluctuated over the past five years, with a range from 0.62 to 0.77. In 2023, the cash ratio stands at 0.63, indicating that the company has $0.63 in cash and cash equivalents for every dollar of current liabilities. While the cash ratio has decreased compared to the previous year, it still reflects a reasonable ability to cover short-term obligations with available cash.

Overall, Esco Technologies, Inc. has demonstrated consistent liquidity strength over the years, as evidenced by its current, quick, and cash ratios. The company's ability to meet its short-term obligations and operational needs appears sound, providing a favorable position for potential investment and sustained operations.

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Additional liquidity measure

The cash conversion cycle (CCC) for Esco Technologies, Inc. over the past five years shows the number of days it takes the company to convert its investments in inventory and other resources into cash flows from sales. A lower CCC is generally favorable as it indicates that the company is efficient in managing its working capital.

The trend of Esco Technologies' CCC over the past five years shows some variability. In 2019, the CCC was 119.55 days, indicating that the company took approximately 119 days to convert its resources into cash flows from sales. This number increased to 140.11 days in 2020 before decreasing to 148.87 days in 2021. However, the CCC improved significantly in 2022 to 128.19 days and further improved to 136.87 days in 2023.

A rising CCC can indicate inefficiency in managing working capital, potentially due to factors such as slower inventory turnover, lengthy accounts receivable collection periods, or extended payment terms with suppliers. On the other hand, a declining CCC reflects improvements in working capital management.

It would be beneficial to analyze the components of the CCC, including Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), and Days Payable Outstanding (DPO), to understand the specific areas driving the changes in the CCC over the years.

Overall, Esco Technologies' fluctuating CCC suggests some variability in its efficiency of managing working capital. Further analysis of the underlying factors contributing to these changes will provide valuable insights into the company's cash flow management and working capital efficiency.