Kratos Defense & Security Solutions (KTOS)

The liquidity position of Kratos Defense & Security Solutions over the period from December 31, 2020, to December 31, 2024, demonstrates notable variations across key ratios—current, quick, and cash ratios—highlighting trends in the company's short-term financial health.

The current ratio, which measures the company's ability to meet its short-term obligations with its current assets, shows a declining trend from 3.87 in 2020 to 2.49 in 2022, reaching lows of 2.03 in 2023 before increasing again to 2.94 in 2024. Despite fluctuations, the current ratio consistently remains above the generally acceptable threshold of 1.0, indicating that the company maintains sufficient current assets relative to current liabilities, although the decreasing trend suggests a gradual erosion in liquidity cushion over the period.

The quick ratio, which refines liquidity assessment by excluding inventories from current assets, similarly declines from 3.31 in 2020 to 1.75 in 2022, with a sharp decrease to 1.37 in 2023. In 2024, the quick ratio recovers somewhat to 2.20. This fluctuation indicates a reduction in the company's ability to cover short-term liabilities using the most liquid assets, especially between 2022 and 2023, but a rebound is observed in 2024. Throughout the period, the quick ratio remains above 1.0, signifying a generally acceptable level of liquidity even during the trough years.

The cash ratio, a more conservative measure reflecting the firm's immediate liquidity through cash and cash equivalents, exhibits a significant decline from 1.93 in 2020 to a low of 0.35 in 2022, reflecting a diminished capacity to cover short-term liabilities with available cash during that year. The ratio further decreases to 0.25 in 2023, indicating a substantial reduction in cash holdings relative to current liabilities. However, in 2024, the cash ratio improves to 1.11, surpassing the 1.0 threshold and indicating a recovery in the company's immediate liquidity position.

Overall, the analyzed liquidity ratios reveal a period of weakening liquidity from 2020 through 2023, particularly evidenced by the sharp declines in the cash ratio, raising considerations regarding the company's ability to meet short-term obligations solely with its cash resources during that interval. The subsequent recovery in 2024 across all ratios, especially the cash ratio, suggests an improvement in liquidity management or operational performance, enhancing the company's short-term financial resilience.

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Additional liquidity measure

The analysis of Kratos Defense & Security Solutions' cash conversion cycle (CCC) over the period from December 31, 2020, to December 31, 2024, reveals notable fluctuations and trends in the company's operational efficiency and working capital management.

In 2020, the CCC was recorded at 150.22 days, indicating the duration it took for the company to convert its investments in inventory and receivables into cash, after accounting for its payables. This metric increased slightly in 2021 to 153.76 days, suggesting a marginal extension in working capital cycle activities during that period.

A more significant increase occurred in 2022, with the CCC reaching 170.50 days. This uptick signifies a lengthening of the company's cycle, which could be attributable to extended receivables collection periods, longer inventory turnover times, or delayed payment to suppliers. Such a shift might reflect strategic changes, operational delays, or market conditions impacting cash flow timing.

Following this peak, the CCC decreased to 160.08 days in 2023, indicating an improvement in cash flow efficiency and a reduction in the cycle length by approximately 10.42 days. This reversal suggests that efforts may have been made to optimize inventory management, accelerate receivables collection, or extend payables.

By 2024, the CCC further declined to 138.44 days, representing a substantial reduction of approximately 21.64 days from the 2023 figure. This downward trend points to a more streamlined cash conversion process, potentially driven by improved operational practices, better working capital policies, or favorable market conditions.

Overall, the four-year period demonstrates a cycle that initially expanded, reaching a peak in 2022, followed by a consistent and meaningful contraction in subsequent years. This trend indicates progressive enhancements in operational efficiency, enabling the company to convert investments into cash more rapidly by 2024 compared to the earlier years.