Home Depot Inc (HD)

Home Depot Inc's liquidity ratios provide insights into the company's ability to meet its short-term obligations. The current ratio has shown some fluctuation over the last five years, ranging from 1.01 to 1.41. A current ratio above 1 indicates that the company has more current assets than current liabilities, with the current ratio of 1.35 as of Jan 28, 2024, suggesting that Home Depot has adequate liquidity to cover its short-term obligations.

The quick ratio, which excludes inventory from current assets, shows a declining trend from 0.47 in 2021 to 0.32 in 2024. A quick ratio below 1 may indicate potential difficulties in meeting short-term obligations without relying on inventory. Home Depot's quick ratio of 0.32 as of Jan 28, 2024, suggests that a significant portion of its current liabilities may not be covered by its most liquid assets.

The cash ratio, which is the most stringent measure of liquidity as it only considers cash and cash equivalents, also shows a declining trend from 0.34 in 2021 to 0.17 in 2024. A decreasing cash ratio may indicate a higher reliance on non-cash current assets to meet short-term obligations. Home Depot's cash ratio of 0.17 as of Jan 28, 2024, signifies that only 17% of its current liabilities are covered by cash and cash equivalents.

Overall, while Home Depot Inc's current ratio indicates reasonable liquidity, the decline in quick and cash ratios over the years may warrant further analysis to ensure the company maintains sufficient liquidity to meet its short-term obligations.

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See also:

Home Depot Inc Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of Home Depot Inc has fluctuated over the past five years. It increased from 29.27 days in January 31, 2021, to 54.59 days in January 29, 2023, before decreasing to 47.21 days in January 28, 2024. This indicates that the company improved its efficiency in managing its cash conversion cycle over the last year. However, the current cycle is still higher compared to January 30, 2022, where it was 39.58 days. Overall, Home Depot Inc should continue to focus on managing its accounts receivable, inventory, and accounts payable effectively to optimize its cash conversion cycle and improve its working capital management.