InterDigital Inc (IDCC)

InterDigital Inc's liquidity ratios provide insights into the company's ability to meet its short-term obligations.

1. Current Ratio: The current ratio measures the company's ability to pay off its current liabilities with its current assets. InterDigital Inc's current ratio has fluctuated over the years, ranging from a high of 4.96 in December 2022 to a low of 1.33 in December 2023. Generally, a current ratio above 1 indicates that the company has more current assets than liabilities, with a higher ratio implying stronger liquidity. InterDigital Inc's current ratio has shown a declining trend in recent years, indicating a potential strain on its short-term liquidity position.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent assessment of liquidity by excluding inventory from current assets. InterDigital Inc's quick ratio has also demonstrated fluctuations, with values ranging from 4.86 in December 2022 to 1.27 in March 2024. A quick ratio above 1 is considered satisfactory, as it suggests the company can cover its current liabilities with its most liquid assets. The decreasing trend in the quick ratio suggests a potential decrease in the company's ability to meet its short-term obligations without relying on inventory.

3. Cash Ratio: The cash ratio is the most conservative liquidity metric, focusing solely on the company's ability to cover its current liabilities with cash and cash equivalents. InterDigital Inc's cash ratio has varied, from a high of 4.43 in December 2022 to a low of 1.09 in multiple periods. A cash ratio above 1 indicates the company can repay its short-term liabilities using only cash on hand. The declining cash ratio over time suggests a decreasing ability to cover short-term obligations solely with cash, which may raise concerns about liquidity risk.

In summary, while InterDigital Inc has maintained current, quick, and cash ratios above 1 for most periods, the declining trends in these ratios in recent years indicate potential challenges in meeting short-term obligations. It is essential for the company to monitor and manage its liquidity position effectively to ensure financial stability and meet operational needs.

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Additional liquidity measure

InterDigital Inc's cash conversion cycle measures the number of days it takes for the company to convert its investments in inventory and accounts receivable into cash.

For the period from March 31, 2020, to December 31, 2024, the cash conversion cycle for InterDigital Inc varied significantly. At the end of December 31, 2020, the company had a cash conversion cycle of 75.40 days which increased to 343.87 days by the end of December 31, 2021, indicating a significant deterioration in the efficiency of converting working capital into cash. This could be a signal of potential issues with managing inventory, collecting accounts receivable, or paying suppliers promptly.

Subsequently, the cash conversion cycle decreased to 49.04 days by March 31, 2023, before increasing again by June 30, 2024, to 126.05 days. Over the entire period, the company's cash conversion cycle ranged from a low of 0.00 days to a high of 343.87 days, showing volatility in the efficiency of the company's working capital management.

InterDigital Inc should strive to optimize its cash conversion cycle by streamlining inventory management, improving account receivable collection processes, and negotiating favorable payment terms with suppliers. This could help in enhancing the company's liquidity position and overall financial performance.