Illinois Tool Works Inc (ITW)
Liquidity ratios
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|
| Current ratio | 1.33 | 1.41 | 1.84 | 2.52 | 2.90 |
| Quick ratio | 0.90 | 0.87 | 1.26 | 1.96 | 2.06 |
| Cash ratio | 0.23 | 0.16 | 0.44 | 0.99 | 0.92 |
Illinois Tool Works, Inc.'s liquidity ratios have exhibited a downward trend over the past five years, indicating a potential weakening in the company's short-term financial health and ability to meet its current obligations.
The current ratio, which measures the company's ability to cover its short-term liabilities with current assets, has decreased from 2.90 in 2019 to 1.33 in 2023. While a current ratio above 1 generally suggests that the company can meet its short-term obligations, a declining trend may signal challenges in managing its working capital efficiently.
The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also shows a decreasing trend, falling from 2.20 in 2019 to 0.97 in 2023. This decrease may indicate that Illinois Tool Works, Inc. has a reduced ability to cover its short-term liabilities with its most liquid assets.
Furthermore, the cash ratio, which focuses solely on the company's ability to cover its current liabilities with cash and cash equivalents, has dropped significantly from 0.99 in 2019 to 0.27 in 2023. A declining cash ratio suggests that the company may have reduced cash reserves available to meet its immediate obligations.
Overall, the decreasing trend in Illinois Tool Works, Inc.'s liquidity ratios from 2019 to 2023 underscores the importance of closely monitoring the company's ability to maintain sufficient liquidity levels to support its operations and financial stability. A potential explanation for this trend could be changes in the company's operating or investing activities impacting its cash position and asset composition.
See also:
Additional liquidity measure
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 115.65 | 129.42 | 119.89 | 106.05 | 95.20 |
The cash conversion cycle of Illinois Tool Works, Inc. has shown a fluctuating trend over the past five years. The cycle measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
In 2023, the cash conversion cycle decreased to 117.79 days from 131.50 days in 2022. This indicates an improvement in the efficiency of managing working capital and cash flows, as the company was able to convert its assets into cash more quickly.
Comparing the cycles over the five-year period, it is noted that the cycle was relatively stable between 2019 and 2021, with a slight increase in 2022. However, the significant decrease in 2023 suggests that Illinois Tool Works, Inc. may have implemented strategies to streamline its operations and enhance its cash conversion efficiency.
Overall, the decreasing trend in the cash conversion cycle is a positive indicator of the company's working capital management and operational efficiency, demonstrating its ability to efficiently convert assets into cash.