Lear Corporation (LEA)

Lear Corporation's liquidity ratios, as depicted by the current ratio, quick ratio, and cash ratio from 2020 to 2024, reflect the company's ability to meet its short-term financial obligations.

1. Current Ratio: Lear Corporation's current ratio has shown a generally stable trend over the years, ranging from 1.32 to 1.42. This indicates that Lear has adequate current assets to cover its current liabilities, with a ratio comfortably above 1. A current ratio above 1 suggests that the company is in a strong position to meet its short-term obligations.

2. Quick Ratio: The quick ratio, which excludes inventory from current assets, provides a more stringent measure of liquidity. Lear Corporation's quick ratio has shown a slight decline over the years, ranging from 0.19 to 0.28. A decreasing trend in the quick ratio may indicate that Lear's ability to cover immediate liabilities without relying on inventory has weakened.

3. Cash Ratio: The cash ratio, which is the most conservative liquidity measure, focuses solely on cash and cash equivalents as a proportion of current liabilities. Lear Corporation's cash ratio has followed a similar pattern to the quick ratio, declining from 0.28 to 0.19. A decreasing cash ratio may suggest a potential liquidity strain if the company faces unexpected cash needs.

In conclusion, while Lear Corporation's current ratio remains at a satisfactory level, the declining trends in the quick ratio and cash ratio could indicate a need for closer monitoring of the company's liquidity position to ensure it can effectively meet its short-term financial obligations in the future.

---

Additional liquidity measure

The cash conversion cycle of Lear Corporation has shown a consistent improvement over the past five years. From 32.09 days as of December 31, 2020, it decreased slightly to 32.10 days by the end of 2021. However, the trend reversed in the subsequent years with significant reductions in the cash conversion cycle. By December 31, 2024, the cash conversion cycle reached its lowest point at 26.97 days, indicating that the company has become more efficient in converting its investments in inventory and accounts receivable into cash.

This improvement in the cash conversion cycle suggests that Lear Corporation has been managing its working capital effectively, potentially by streamlining its operations, optimizing inventory levels, and improving collection processes. A shorter cash conversion cycle generally signifies better liquidity and operational efficiency, allowing the company to free up cash for other strategic initiatives or investments. Overall, the declining trend in Lear Corporation's cash conversion cycle reflects positive management efforts in working capital management and operational efficiency.