Generac Holdings Inc (GNRC)

Generac Holdings Inc's liquidity ratios provide insights into the company's ability to meet short-term obligations and manage its current assets efficiently.

The current ratio, which measures the company's ability to cover short-term liabilities with its current assets, has shown a fluctuating trend over the past five years. It increased from 2.41 in 2019 to 2.60 in 2020, indicating a strong ability to meet short-term obligations. However, in 2021, the ratio dropped to 1.60, suggesting a potential liquidity strain. This was followed by an improvement to 2.20 in 2022 and further to 2.27 in 2023, indicating that Generac Holdings Inc has strengthened its liquidity position in recent years.

The quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, also fluctuated over the same period. The ratio declined from 1.36 in 2019 to 0.66 in 2021, indicating a potential liquidity concern. However, there was a significant improvement in 2022 and 2023, with the quick ratio reaching 0.78 and 0.94, respectively, reflecting better liquidity management by the company.

The cash ratio, which measures the company's ability to cover current liabilities with its cash and cash equivalents, shows a varied performance. In 2020, the cash ratio was notably high at 1.08, indicating a strong cash position relative to short-term obligations. However, this ratio declined in the following years, reaching 0.33 in 2023. This downward trend suggests that Generac Holdings Inc may have utilized its cash reserves for investment or other purposes, potentially impacting its liquidity position.

In conclusion, while the current and quick ratios of Generac Holdings Inc have generally improved in recent years, the downward trend in the cash ratio requires further scrutiny. It is essential for the company to maintain a balance between liquidity and investment in order to meet its short-term obligations effectively.

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See also:

Generac Holdings Inc Liquidity Ratios

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Additional liquidity measure

Generac Holdings Inc's cash conversion cycle has shown fluctuations over the past five years. The trend indicates that the company's ability to efficiently convert its investments in inventory and accounts receivable into cash has varied.

In 2023, the cash conversion cycle increased to 162.32 days compared to 156.86 days in 2022. This suggests that Generac took longer to convert its resources into cash, indicating potential inefficiencies in managing inventory and collecting receivables.

Comparing 2023 to 2021, there was a notable increase in the cash conversion cycle from 117.17 days to 162.32 days. This significant rise may signify a deterioration in the company's liquidity position and operational efficiency.

However, when compared to 2020 and 2019, the cash conversion cycle in 2023 remained relatively stable, indicating that Generac has been able to maintain a consistent level of efficiency in managing its working capital over the past few years.

Overall, the increasing trend in the cash conversion cycle from 2021 to 2023 warrants a closer examination of Generac's working capital management practices to identify areas for improvement and ensure optimal cash flow generation.