WK Kellogg Co (KLG)

Based on the provided data, WK Kellogg Co's liquidity ratios show a concerning trend over the three periods analyzed.

The current ratio, which measures the company's ability to pay off its short-term liabilities with its current assets, has decreased from 0.83 in June 30, 2024, to 0.74 in December 31, 2024. A current ratio below 1 indicates that the company may have difficulty meeting its short-term obligations.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. WK Kellogg Co's quick ratio has shown a similar decline, with values of 0.34 in June 30, 2024, decreasing to 0.28 in December 31, 2024. This suggests that the company may struggle to pay off its current liabilities without relying on selling inventory.

Furthermore, the cash ratio, which indicates the proportion of current liabilities that could be paid off with cash on hand, has also decreased from 0.06 in June 30, 2024, to 0.05 in December 31, 2024. This declining trend raises concerns about WK Kellogg Co's ability to cover its short-term obligations solely with its available cash resources.

In conclusion, based on the declining current ratio, quick ratio, and cash ratio, WK Kellogg Co may face challenges in meeting its short-term financial obligations and may need to carefully manage its liquidity position in the coming periods.

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Additional liquidity measure

To analyze WK Kellogg Co's cash conversion cycle, we calculate the average number of days it takes for the company to convert its investments in inventory into cash receipts from customers. The cash conversion cycle is determined by adding the average days of inventory outstanding (DIO) and the average days of sales outstanding (DSO) while subtracting the average days of payables outstanding (DPO).

Using the provided data, the cash conversion cycle for WK Kellogg Co on June 30, 2024, was 4.28 days, on September 30, 2024, it decreased to 3.33 days, and on December 31, 2024, it increased to 4.39 days.

The decreasing trend from June to September indicates that the company was able to convert its inventory into cash more efficiently during that period. However, the subsequent increase in the cash conversion cycle from September to December suggests a potential slowdown in the cash conversion process, possibly due to longer payment terms or inventory turnover.

Overall, WK Kellogg Co's cash conversion cycle fluctuated over the analyzed period, with variations in inventory management, sales collection, and payment terms impacting the company's cash flow efficiency. Monitoring and optimizing the cash conversion cycle is crucial for managing working capital effectively and maximizing cash resources for business operations.