LGI Homes (LGIH)

LGI Homes has exhibited strong liquidity based on its current ratio over the years, with the ratio consistently above 1. This indicates the company's ability to cover its short-term liabilities with its current assets. The current ratio improved from 11.58 in 2020 to 25.16 in 2024, reflecting a significant enhancement in liquidity.

Similarly, the quick ratio, which excludes inventory from current assets, also shows a positive liquidity position for LGI Homes. The quick ratio increased from 0.24 in 2020 to 0.39 in 2024, indicating the company's ability to meet short-term obligations with its most liquid assets.

Furthermore, the cash ratio, a more stringent measure of liquidity, remained stable over the years at 0.24 in 2020 and 0.39 in 2024. This suggests that LGI Homes has a healthy level of cash reserves to cover its current liabilities without relying on selling its inventory.

Overall, LGI Homes demonstrates robust liquidity positions across its current ratio, quick ratio, and cash ratio, indicating the company's ability to efficiently manage its short-term financial obligations.

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Additional liquidity measure

The cash conversion cycle of LGI Homes has displayed fluctuations over the five-year period analyzed. At the end of December 2020, the cash conversion cycle stood at 324.60 days, indicating that it took the company approximately 325 days to convert its investments in inventory and other resources back into cash.

By the end of December 2021, the cash conversion cycle extended to 341.09 days, suggesting a slight increase in the time taken to convert assets into cash. However, in the subsequent year ending December 2022, there was a significant jump in the cycle to 638.10 days, indicating a notable delay in the company's cash conversion process.

Despite this large increase, LGI Homes managed to decrease the cash conversion cycle to 624.48 days by December 2023, although it was still higher compared to the levels seen in the earlier years.

By the end of December 2024, the cash conversion cycle reached 740.76 days, signaling a further elongation in the time taken to convert investments into cash, possibly implying challenges in efficiently managing working capital and converting assets into liquid funds.

Overall, the fluctuating trend in LGI Homes' cash conversion cycle over the five years highlights the importance of closely monitoring working capital management to ensure efficient operations and cash flow generation.