Eaton Corporation PLC (ETN)
Liquidity ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Current ratio | 1.50 | 1.51 | 1.37 | 1.04 | 1.55 |
| Quick ratio | 0.26 | 0.34 | 0.09 | 0.08 | 0.19 |
| Cash ratio | 0.26 | 0.34 | 0.09 | 0.08 | 0.19 |
Eaton Corporation PLC's liquidity ratios show fluctuations over the years. The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, declined from 1.55 in 2020 to 1.04 in 2021 before gradually increasing to 1.50 in 2024. This indicates that the company may have faced some short-term liquidity challenges in 2021 but managed to improve its liquidity position in the subsequent years.
The quick ratio, also known as the acid-test ratio, reflects Eaton Corporation PLC's ability to meet its short-term obligations using its most liquid assets. It fell sharply from 0.19 in 2020 to 0.08 in 2021 and remained relatively low in 2022 at 0.09 before showing improvement to 0.26 in 2024. The low quick ratio in 2021 and 2022 suggests that the company may have had difficulties in meeting its immediate payment obligations with its highly liquid assets during those years.
The cash ratio, which measures a company's ability to cover its current liabilities with its cash and cash equivalents, followed a similar trend to the quick ratio. It dropped from 0.19 in 2020 to 0.08 in 2021 and 2022 before rising to 0.26 in 2024. This implies that Eaton Corporation PLC had limited cash reserves in 2021 and 2022 compared to its short-term obligations but managed to strengthen its cash position in the following years.
Overall, the fluctuating trends in Eaton Corporation PLC's liquidity ratios indicate variations in its short-term liquidity management throughout the years under review. It is important for the company to focus on maintaining a healthy liquidity position to meet its financial obligations effectively in the future.
See also:
Additional liquidity measure
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 100.35 | 93.63 | 90.30 | 81.52 | 62.04 |
The cash conversion cycle for Eaton Corporation PLC has shown a gradual increase over the years, indicating a lengthening of the time it takes the company to convert its investments in inventory and accounts receivable into cash receipts from its sales.
Starting at 62.04 days on December 31, 2020, the cash conversion cycle has expanded to 81.52 days by December 31, 2021. This suggests a potential slowdown in the company's ability to efficiently manage its working capital and liquidity.
Further increases in the cash conversion cycle are observed in subsequent years, with figures reaching 90.30 days on December 31, 2022, 93.63 days on December 31, 2023, and 100.35 days on December 31, 2024. These trends indicate a potential challenge for Eaton Corporation PLC in managing its cash flow effectively and optimizing its operational efficiency.
It is essential for the company to closely monitor and address factors contributing to the lengthening cash conversion cycle to ensure sustainable financial health and operational performance in the future.