FirstEnergy Corporation (FE)

FirstEnergy Corporation's liquidity ratios provide insights into the company's ability to meet short-term obligations and manage its current liabilities efficiently.

1. Current Ratio: The current ratio measures the company's ability to cover its short-term liabilities with its current assets. FirstEnergy's current ratio fluctuated over the years, ranging from a low of 0.48 on December 31, 2023, to a high of 0.83 on June 30, 2021. The ratio has generally been below 1, indicating that the company may have had difficulty in meeting its short-term obligations with its current asset levels.

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. FirstEnergy's quick ratio has shown significant variability, ranging from a negative value on September 30, 2022, to a high of 0.35 on December 31, 2020. A quick ratio below 1 may suggest potential difficulties in meeting immediate obligations without relying on inventory sales.

3. Cash Ratio: The cash ratio focuses solely on the most liquid assets, cash, and equivalents, providing a conservative view of liquidity. FirstEnergy's cash ratio has also fluctuated over the years, with a low of -0.00 on September 30, 2022, to a high of 0.38 on September 30, 2020. A negative cash ratio, as shown in one instance, indicates that the company's cash and equivalents were insufficient to cover its current liabilities, which raises concerns about its short-term solvency.

Overall, analyzing these liquidity ratios suggests that FirstEnergy Corporation has faced challenges in maintaining optimal liquidity levels to cover its short-term obligations consistently. Management may need to closely monitor and improve these ratios to ensure the company's financial stability and ability to meet its current liabilities efficiently in the future.

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Additional liquidity measure

The cash conversion cycle of FirstEnergy Corporation has shown fluctuations over the observed period. The trend indicates that the company has been efficient in managing its working capital. The cycle, which represents the time taken to convert inputs such as inventory into cash receipts from customers, decreased in the initial quarters of 2021 but increased slightly towards the end of 2021 and into 2022.

The company's cash conversion cycle improved significantly in the third quarter of 2021, reaching a low of 27.19 days, highlighting efficient inventory management and collection from customers. This trend continued in the subsequent quarters, with the cycle remaining relatively stable around the 27 to 35-day range.

However, by the end of 2023, the cash conversion cycle had increased to 40.22 days, indicating a potential delay in cash receipts or a buildup of inventory, which may require attention to maintain optimal working capital levels.

In the second quarter of 2024, there was a sharp decline in the cash conversion cycle to 26.86 days, suggesting improved efficiency in working capital management. This positive trend is important for the company's liquidity position and operational effectiveness.

Overall, FirstEnergy Corporation's cash conversion cycle reflects fluctuations but generally demonstrates a reasonable efficiency in converting its resources into cash inflows, indicating effective working capital management practices. It is important for the company to monitor this metric closely to ensure optimal cash flow and liquidity position.