Eagle Materials Inc (EXP)

The liquidity ratios of Eagle Materials Inc have shown both strengths and weaknesses over the past five years.

The current ratio, which measures the company's ability to pay its short-term obligations with its current assets, has been relatively strong and stable, ranging from 2.13 to 4.00. A current ratio above 1 indicates that the company has more current assets than current liabilities, with higher ratios suggesting better liquidity. Eagle Materials Inc's current ratio has generally remained above 2, indicating a healthy liquidity position.

The quick ratio, also known as the acid-test ratio, assesses the company's ability to settle its immediate liabilities with its most liquid assets (cash, marketable securities, and receivables). The quick ratio has fluctuated over the years, ranging from 0.98 to 2.55. Eagle Materials Inc's quick ratio has generally been above 1, which is considered satisfactory, indicating that the company has sufficient liquid assets to cover its short-term obligations.

The cash ratio, which is the most stringent liquidity ratio, measures the company's ability to pay off its current liabilities using only its cash and cash equivalents. Eagle Materials Inc's cash ratio has varied significantly, from 0.07 to 1.66. A cash ratio below 1 indicates that the company may not have enough cash to cover its short-term liabilities. It is noteworthy that the company's cash ratio experienced a significant decline in 2023 before rebounding in subsequent years.

In summary, Eagle Materials Inc has demonstrated generally robust liquidity levels as evidenced by its current and quick ratios remaining above industry benchmarks. However, fluctuations in the cash ratio suggest some variation in the company's ability to meet its short-term obligations solely from cash reserves. Monitoring and managing cash flows efficiently will be crucial to maintaining a healthy liquidity position for the company.

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Additional liquidity measure

The cash conversion cycle for Eagle Materials Inc has exhibited fluctuations over the past five years. In the most recent period ending March 31, 2024, the company's cash conversion cycle extended to 87.51 days, which represents an increase compared to the preceding year. This indicates that it took Eagle Materials Inc more time to convert its investments in inventory and accounts receivable into cash during this period.

Looking back, the trend reveals that the cash conversion cycle has generally been decreasing from March 31, 2020, where it reached a peak of 119.11 days. The subsequent years showed improvements as the company managed to shorten its cash conversion cycle, with the cycle hitting its lowest point at 67.49 days on March 31, 2022.

While the increase in the cash conversion cycle in the most recent period may raise some concerns about the company's efficiency in managing its working capital, it is essential to consider the industry dynamics and specific circumstances that may have influenced this metric. Continuous monitoring and potential adjustments in inventory management and accounts receivable policies could help Eagle Materials Inc optimize its cash conversion cycle going forward.