Grocery Outlet Holding Corp (GO)

The liquidity ratios of Grocery Outlet Holding Corp indicate the company's ability to meet its short-term obligations and cover immediate cash needs.

1. Current Ratio: This ratio measures the firm's ability to pay its short-term liabilities with its short-term assets. The current ratio has been fluctuating over the years, ranging from 1.35 to 1.86. A current ratio above 1 indicates that the company has more current assets than current liabilities. Generally, a higher current ratio is favorable as it suggests a stronger ability to cover short-term obligations.

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. Grocery Outlet Holding Corp's quick ratio has shown a declining trend from 0.59 to 0.18, reflecting a decreasing ability to cover short-term liabilities without relying on inventory sales. A quick ratio above 1 is typically considered ideal as it indicates that the company can meet its immediate liabilities using its most liquid assets.

3. Cash Ratio: The cash ratio specifically focuses on the firm's ability to cover short-term liabilities with its cash and cash equivalents. The cash ratio of Grocery Outlet Holding Corp has also exhibited a decreasing trend, falling from 0.59 to 0.18. A cash ratio of 0.18 means that for every dollar of current liabilities, the company holds only $0.18 in cash and cash equivalents, suggesting a limited ability to pay off short-term obligations solely with cash holdings.

In summary, while the current ratio of Grocery Outlet Holding Corp suggests a relatively healthy liquidity position with assets to cover liabilities, the declining trend in both quick ratio and cash ratio raises concerns about the company's ability to meet short-term obligations without relying on inventory or non-cash assets. Management may need to closely monitor and implement strategies to improve liquidity in the future.

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Additional liquidity measure

The cash conversion cycle of Grocery Outlet Holding Corp has shown a fluctuating trend over the past five years, starting at 41.40 days on December 31, 2020, and reaching its peak at 49.09 days on December 31, 2022. The cycle measures the time it takes for the company to convert its investments in inventory back into cash, indicating the efficiency of its working capital management.

Although there was an increase in the cash conversion cycle from 2020 to 2022, the company managed to reduce it slightly to 46.83 days by December 31, 2023. However, it increased again to 47.18 days by the end of 2024. A longer cash conversion cycle may suggest inefficiencies in inventory management or challenges in collecting receivables, potentially impacting the company's liquidity and profitability.

It is essential for Grocery Outlet Holding Corp to continue monitoring and managing its cash conversion cycle effectively to ensure optimal use of its working capital and improve its overall financial performance.