Graco Inc (GGG)

Graco Inc's liquidity ratios indicate its ability to meet short-term obligations and cover immediate financial needs.

1. Current Ratio: The current ratio reflects the company's ability to pay off its current liabilities with its current assets. Graco's current ratio has shown some variation over the years but has generally remained above 2. A higher current ratio is preferable as it indicates a better ability to cover short-term obligations. However, a decreasing trend in recent periods, falling to around 3 as of December 31, 2024, may warrant further investigation into the company's liquidity position.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a more conservative measure of liquidity by excluding inventory from current assets. Graco's quick ratio has also fluctuated but has generally been above 1, indicating a positive ability to meet short-term obligations without relying on selling inventory. However, the quick ratio decreased to around 1.66 as of December 31, 2024, which may raise concerns about the company's liquid assets relative to its current liabilities.

3. Cash Ratio: The cash ratio specifically measures the ability to cover current liabilities with cash and cash equivalents. Graco's cash ratio has followed a similar trend to the quick ratio, staying above 1 for most periods. As of December 31, 2024, the cash ratio stood at 1.66, reflecting a comfortable cushion of cash to cover immediate obligations.

Overall, while Graco Inc has generally maintained liquidity ratios above industry norms, the recent downward trend in the current ratio and quick ratio, though still relatively healthy, suggests a need for closer monitoring of the company's liquidity position to ensure it can meet its short-term financial obligations effectively.

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Additional liquidity measure

The cash conversion cycle for Graco Inc has shown fluctuations over the periods provided, ranging from a low of 131.14 days on December 31, 2020, to a high of 166.99 days on June 30, 2024. The cycle represents the time it takes for the company to convert its investments in inventory and other resources into cash flows from sales.

Typically, a longer cash conversion cycle may indicate inefficiencies in managing working capital, suggesting potential issues with inventory management, collection of receivables, or payment of payables. On the other hand, a shorter cycle implies faster conversion of investment into cash and better working capital management.

In the case of Graco Inc, the trend of increasing cash conversion cycle from March 31, 2022, to December 31, 2024, may suggest potential challenges in managing working capital efficiently. It would be essential for the company to consider strategies to optimize inventory levels, expedite the collection of receivables, and negotiate favorable payment terms with suppliers to improve the cash conversion cycle and enhance overall liquidity and financial performance.