International Paper (IP)

The liquidity ratios of International Paper indicate the company's ability to meet its short-term obligations.

1. Current Ratio: The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown fluctuations over the years. The ratio increased from 1.36 in 2020 to 1.71 in 2021, indicating an improvement in the company's short-term liquidity position. However, it declined to 1.35 in 2022 before recovering to 1.67 in 2023 and then decreasing slightly to 1.51 in 2024. Overall, the current ratio generally suggests that International Paper has maintained a reasonable ability to meet its current obligations with its current assets.

2. Quick Ratio: The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, shows a decline from 0.66 in 2020 to 0.27 in 2024. This suggests a decreasing ability to cover short-term obligations with more liquid assets, indicating a potential liquidity concern. The significant drop in the quick ratio over the years may require further investigation to understand the company's ability to meet immediate payment requirements.

3. Cash Ratio: The cash ratio, which evaluates the company's ability to cover its current liabilities with cash and cash equivalents, mirrors the trend of the quick ratio. It decreased from 0.66 in 2020 to 0.27 in 2024, indicating a decreasing ability to pay off short-term obligations solely with cash assets. This decline in the cash ratio implies a potential strain on the company's liquidity position, as it suggests a reduced ability to rely on cash reserves in meeting immediate payment requirements.

In conclusion, while the current ratio of International Paper generally indicates a reasonable short-term liquidity position, the decline in quick ratio and cash ratio over the years may require further analysis to assess the company's ability to meet its immediate financial obligations and manage its liquidity effectively.

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Additional liquidity measure

The cash conversion cycle of International Paper has shown a downward trend over the past five years, decreasing from 52.06 days as of December 31, 2020, to 48.68 days as of December 31, 2024. This indicates that the company has been more efficient in managing its cash flows related to its operating cycle.

A lower cash conversion cycle is generally a positive indicator as it suggests that the company is able to convert its investment in inventory into cash more quickly. This could result from effective inventory management, faster collection of receivables, or extended payment terms with suppliers.

However, the slight uptick in the cash conversion cycle from 2022 to 2023 and then again in 2024 is worth monitoring. It may signal a potential slowdown in inventory turnover or delays in collecting receivables, both of which could impact the company's liquidity position.

Overall, International Paper's decreasing trend in the cash conversion cycle reflects positive working capital management, but stakeholders should continue to assess the underlying factors contributing to any fluctuations in the cycle to ensure sustained operational efficiency.