Element Solutions Inc (ESI)

The analysis of Element Solutions Inc.'s liquidity ratios over the period from December 31, 2020, to December 31, 2024, indicates a generally stable liquidity position with some variations.

Current Ratio:
The current ratio exhibits a relatively high and consistent level of liquidity, fluctuating between 2.93 and 3.45 during the period. The ratio peaked at 3.45 in 2022, suggesting a strong ability to cover short-term liabilities with short-term assets. A slight decline to 3.24 in 2023 and a modest rebound to 3.34 in 2024 reflect minor adjustments rather than significant shifts in liquidity management.

Quick Ratio:
The quick ratio, which excludes inventory from current assets for a more stringent liquidity assessment, remains within a narrow range of 1.98 to 2.19. The lowest point was 1.98 in 2021, with the highest at 2.19 in 2022. The ratios in 2023 and 2024 are consistent at approximately 2.09 and 2.10, indicating a stable capacity to meet immediate liabilities without relying on inventory sales.

Cash Ratio:
The cash ratio, a conservative measure of liquidity focusing solely on cash and cash equivalents, ranged from 0.80 to 0.95. It decreased slightly from 0.93 in 2020 to 0.80 in 2021, then increased to 0.87 in 2022, 0.84 in 2023, and reached 0.95 in 2024. The rising trend in the cash ratio towards the latter years suggests an improvement in the company's liquid cash position, enhancing its ability to cover short-term obligations solely through cash.

Overall Impression:
Element Solutions Inc. maintains a robust liquidity profile with current and quick ratios well above common thresholds indicating sound short-term financial health. The stability and slight upward trend in the cash ratio in recent years further support the company's capacity to meet immediate obligations with cash reserves. The ratios collectively suggest prudent liquidity management and a generally conservative approach to short-term financial planning.

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Additional liquidity measure

The cash conversion cycle (CCC) of Element Solutions Inc. demonstrates a generally decreasing trend over the period from December 31, 2020, to December 31, 2024. Specifically, the CCC was recorded at 116.18 days at the end of 2020, decreased to 109.36 days in 2021, experienced a slight increase to 115.16 days in 2022, and then declined again to 113.09 days in 2023, culminating in a notable reduction to 97.38 days by the end of 2024.

This pattern reflects fluctuations in the firm’s operational efficiency, inventory management, and receivables and payables management. The overall downward movement from 116.18 days to 97.38 days indicates an improvement in the company's ability to convert its investments in inventory and receivables into cash, thus reducing the duration of its working capital cycle. The stabilization and subsequent decline suggest enhanced operational efficiencies and potentially stronger working capital management strategies implemented over these years.

The reduction in the CCC signifies that Element Solutions Inc. is effectively shortening the time it takes to convert resource inputs into cash inflows, which can contribute positively to liquidity and operational cash flows. Continued monitoring of the underlying components—such as days sales outstanding, days inventory outstanding, and days payable outstanding—is essential to better understand the drivers behind these changes and to assess the sustainability of the improvement trend.