Goodyear Tire & Rubber Co (GT)

The liquidity ratios of Goodyear Tire & Rubber Co. provide insights into the company's ability to meet its short-term financial obligations. Looking at the data, the current ratio has shown some fluctuations over the last five years, ranging from 1.07 to 1.21. A current ratio above 1 indicates that the company has sufficient current assets to cover its current liabilities. Although the current ratio has decreased slightly in 2023 compared to the previous year, it still indicates that Goodyear has an acceptable level of liquidity.

The quick ratio, which accounts for only the most liquid assets, has also shown some variability but generally stays below 1, implying a lower level of liquidity compared to the current ratio. The decreasing trend in the quick ratio over the years may suggest potential issues with the company's ability to quickly convert assets into cash to meet its short-term obligations.

The cash ratio, which is the most stringent measure of liquidity, has declined significantly from 0.35 in 2020 to 0.17 in 2023. This indicates that Goodyear's ability to cover its current liabilities solely with cash has weakened over the years, raising concerns about its short-term financial health.

In summary, while the current ratio suggests that Goodyear has generally maintained an adequate level of liquidity to meet its short-term obligations, the decreasing trend in the quick ratio and a substantial decline in the cash ratio raise flags regarding the company's ability to quickly access cash to address immediate financial needs. It would be beneficial for Goodyear to closely monitor and potentially improve its liquidity position to ensure ongoing financial stability.

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Additional liquidity measure

The cash conversion cycle is a key financial metric that measures how quickly a company can convert its investments in inventory and other resources into cash flows from sales. A shorter cash conversion cycle is generally seen as favorable, as it indicates that the company is efficiently managing its working capital.

Analyzing Goodyear Tire & Rubber Co.'s cash conversion cycle over the past five years, we observe some fluctuations in its efficiency in managing its working capital:

1. In 2023, Goodyear's cash conversion cycle was 35.83 days, showing an improvement from the previous year. This suggests that the company was more efficient in converting its investments into cash during the year.

2. In 2022, the cash conversion cycle increased to 40.79 days, indicating a slight deterioration in efficiency compared to the previous year.

3. In 2021, there was a decrease in the cash conversion cycle to 35.08 days, implying a return to a more efficient working capital management strategy.

4. The cash conversion cycle was notably low in 2020 at 22.13 days, indicating a significantly improved efficiency in managing working capital during that period.

5. In 2019, the cash conversion cycle increased substantially to 46.25 days, suggesting a possible inefficiency in working capital management that year.

Overall, Goodyear Tire & Rubber Co. has shown variability in its cash conversion cycle over the last five years, with some years demonstrating improvements in efficiency while others showing a decline. It is important for the company to focus on maintaining a shorter cash conversion cycle to optimize its working capital management and enhance its overall financial performance.