Howmet Aerospace Inc (HWM)

The liquidity ratios of Howmet Aerospace Inc show a mixed performance over the past five years.

1. Current Ratio:
The current ratio, which measures the company's ability to cover its short-term liabilities with its short-term assets, has remained relatively stable over the years, ranging from 1.86 to 2.21. A ratio above 1 indicates that the company has more current assets than current liabilities, with a higher ratio implying a stronger liquidity position. Howmet Aerospace's current ratio has generally been above 2, suggesting a comfortable liquidity position.

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. Howmet Aerospace's quick ratio has shown a decreasing trend from 0.97 in 2020 to 0.36 in 2024. A quick ratio below 1 indicates that the company may have difficulty meeting its short-term obligations without relying on selling its inventory, which could be a concern for the company's liquidity position.

3. Cash Ratio:
The cash ratio reflects the company's ability to cover its current liabilities using only its cash and cash equivalents. Howmet Aerospace's cash ratio has followed a similar trend to the quick ratio, decreasing from 0.97 in 2020 to 0.36 in 2024. This indicates that the company may have limited ability to cover its short-term liabilities solely with its cash reserves over the years.

In summary, while Howmet Aerospace Inc has maintained a healthy current ratio above 2, signaling sufficient short-term liquidity, the decreasing trend in the quick ratio and cash ratio raises concerns about the company's ability to quickly meet its short-term obligations without relying on selling inventory or other assets. Management may need to monitor these ratios closely to ensure adequate liquidity in the future.

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Additional liquidity measure

The cash conversion cycle of Howmet Aerospace Inc has shown some fluctuations over the past five years.

As of December 31, 2020, the cash conversion cycle was 140.05 days, indicating that the company takes around 140 days on average to convert its investments in raw materials into cash from sales.

By December 31, 2021, the cash conversion cycle slightly increased to 142.31 days, suggesting a longer time required to convert investments into cash.

However, the trend reversed in the subsequent years. The cash conversion cycle decreased to 143.14 days by December 31, 2022, and further dropped to 134.97 days by the end of 2023, indicating an improvement in the company's efficiency in managing its working capital.

By December 31, 2024, the cash conversion cycle decreased even more significantly to 131.20 days, suggesting that Howmet Aerospace Inc has been more effective in managing its inventory, accounts receivable, and accounts payable to generate cash more efficiently.

Overall, the company has shown improvement in its cash conversion cycle over the years, indicating better working capital management and efficiency in converting resources into cash.