Kratos Defense & Security Solutions (KTOS)

Kratos Defense & Security Solutions has demonstrated a consistent level of liquidity over the period analyzed, as reflected in its liquidity ratios. The current ratio, which measures the company's ability to meet short-term obligations with its short-term assets, has shown a gradual decline from a high of 4.38 on June 30, 2020, to approximately 2.03 at the end of December 2023. Although this indicates a decreasing trend, the current ratio remains above 2.0 in the more recent periods, suggesting that the company maintains a solid liquidity buffer, albeit somewhat reduced compared to earlier years.

The quick ratio, which excludes inventory from current assets to provide a more stringent test of liquidity, has similarly evidenced a declining trend. Starting from a high of 3.78 in June 2020, it has decreased to approximately 1.37 at the end of December 2023. This indicates that after excluding inventories, the company's ability to cover its immediate liabilities has diminished but continues to surpass 1.0, implying that liquidity remains adequate.

The cash ratio, which measures a company's ability to meet short-term liabilities with cash and cash equivalents, has experienced a decline from 2.34 on June 30, 2020, to a low of 0.19 in March 2023, before rebounding slightly in subsequent periods to approximately 0.86 by March 2025. The significant dip below 1.0 during 2022 and early 2023 reflects a reduction in the proportion of cash readily available to cover immediate obligations. However, the recent increase suggests some improvement in liquidity positioning, although the cash ratio remains below 1.0 in most recent quarters, indicating a reliance on other liquid assets or receivables to meet short-term commitments.

Overall, the company's liquidity position has been gradually tightening over the analyzed period, especially notable in the decline of the cash ratio. Nonetheless, the ratios suggest that Kratos still maintains sufficient liquidity levels to meet current liabilities, with the current and quick ratios well above critical thresholds, although the decreasing trend warrants ongoing monitoring for potential liquidity risks.

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Additional liquidity measure

The analysis of Kratos Defense & Security Solutions' cash conversion cycle (CCC) from June 30, 2020, through March 31, 2025, reveals notable fluctuations and overall trends in the company's operational efficiency concerning its working capital management.

Initially, the CCC was 142.29 days as of June 30, 2020. This figure exhibited an upward trajectory through the subsequent periods, reaching a peak of 179.23 days on March 31, 2023. The increase indicates a period during which the company experienced longer durations in converting its investments in inventory and receivables into cash, possibly reflecting more extended billing cycles, inventory buildup, or delays in accounts receivable collections.

From the peak in early 2023, a downward trend commenced, with the CCC decreasing to 159.70 days by December 31, 2023. The decline became more pronounced into the fiscal year ending March 31, 2024, with the CCC falling to 153.91 days, and further reducing to 151.28 days by June 30, 2024, and to 145.45 days on September 30, 2024. By December 31, 2024, the CCC had decreased further to 138.27 days, indicating an improved efficiency in managing working capital. The subsequent period up to March 31, 2025, shows a slight uptick to 152.86 days, suggesting a modest extension in the company's working capital cycle.

Overall, the data demonstrates periods of increasing operational liquidity duration followed by phases of improvement, particularly from late 2023 onward. The reduction in CCC towards the end of the period implies an enhancement in operational efficiency, potentially due to better inventory management, faster receivables turnover, or more effective payables management. These trends are indicative of the company's efforts to optimize working capital and reduce cash conversion cycles over the analyzed period.