GMS Inc (GMS)

The analysis of GMS Inc.’s liquidity position over the observed period reveals the following insights regarding its current, quick, and cash ratios.

The current ratio demonstrates a consistent level of short-term liquidity, fluctuating within a narrow band. Starting at 2.39 in July 2020, it experienced minor oscillations, dipping to 1.96 in April 2021, before gradually increasing over subsequent periods, reaching a peak of 2.53 in January 2023. Subsequently, the ratio generally remained above 2. with some slight declines, ending at 2.30 in January 2025. This stability above the generally accepted benchmark of 2 suggests the company maintains a comfortable level of current assets relative to current liabilities, indicating adequate liquidity to meet short-term obligations.

The quick ratio, which provides a more stringent measure by excluding inventories from current assets, followed a similar but slightly more variable trend. It started at 1.55 in July 2020, declining to a low of 1.21 in July 2021, then gradually recovering and stabilizing around 1.4 before experiencing minor fluctuations. The ratio peaked at 1.55 in January 2023 and then dipped again, ending at 1.30 in April 2025. These values indicate GMS Inc. generally maintains sufficient liquid assets, including receivables and cash, to cover immediate liabilities, with ratios consistently above 1. indicating good short-term financial health.

The cash ratio, representing the most conservative liquidity measure, shows more variability and generally lower levels compared to the other two ratios. It started at 0.38 in July 2020, gradually declining to a low of 0.07 in April 2025, with interim fluctuations. The ratio remained well below 1 throughout the period, illustrating that a significant portion of current liabilities cannot be covered solely with cash or cash equivalents. Notably, during the period, the ratio often hovered around 0.1 to 0.2, indicating reliance on other current assets for liquidity management.

In summary, GMS Inc. exhibits strong short-term liquidity as evidenced by the current and quick ratios consistently above conventional benchmarks, implying adequate ability to meet its obligations without resorting to asset liquidation. The cash ratio's lower levels reflect a typical pattern for asset-light businesses or companies with inventories and receivables sufficient to meet short-term needs, albeit with limited liquidity in cash terms. Overall, the company's liquidity position appears stable, with no significant deterioration observed across the analyzed periods.

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Additional liquidity measure

The analysis of GMS Inc.’s cash conversion cycle (CCC) from July 31, 2020, through April 30, 2025, reveals notable fluctuations over this period with a discernible trend toward stabilization and gradual improvement in recent periods.

Initially, the CCC was approximately 67.35 days as of July 31, 2020, indicating the company’s operational efficiency in converting investments in inventory and receivables into cash. Throughout the subsequent quarters, there was a general upward trajectory, with the cycle reaching a peak of 96.83 days on October 31, 2021, and remaining relatively high through early 2023. This increase suggests deteriorating liquidity management, possibly attributable to extended inventory holding periods, delays in receivables collection, or supply chain challenges during this period.

Between early 2023 and mid-2024, the CCC demonstrated a declining trend, decreasing from around 80.85 days in January 2023 to approximately 62.55 days by April 2025. This reduction indicates improved efficiency, potentially driven by better inventory management, enhanced receivables turnover, or optimized payment terms. The recent figures, notably the 62.55 days in April 2025, reflect a healthier operating cycle, aligning closer to the earlier periods of efficiency observed in 2020.

Overall, the company's cash conversion cycle has experienced periods of elongation driven by external and internal factors but shows signs of recovery and stabilization in the latest reported periods. This trend suggests that GMS Inc. has been progressively improving its working capital management, leading to enhanced liquidity and operational efficiency over time.