LGI Homes (LGIH)

LGI Homes Inc's liquidity ratios provide insights into the company's ability to meet its short-term financial obligations. The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown fluctuations over the past five years, ranging from 8.67 in 2022 to 16.18 in 2021. The current ratio significantly improved in 2021, indicating a stronger ability to meet short-term obligations.

The quick ratio, which is a more stringent measure of liquidity as it excludes inventory from current assets, fluctuated over the years. LGI Homes Inc's quick ratio was relatively low in 2022 at 0.17, indicating a potential liquidity issue, but improved in 2021 to 0.80. A quick ratio below 1 may raise concerns about the company's ability to meet its short-term liabilities without relying on inventory.

The cash ratio, which is the most conservative measure of liquidity focusing solely on cash and cash equivalents to cover short-term liabilities, also varied for LGI Homes Inc. The cash ratio ranged from 0.09 in 2022 to 0.37 in 2021. A cash ratio below 0.2 may indicate that the company relies heavily on non-cash current assets to meet short-term obligations.

Overall, LGI Homes Inc has shown fluctuations in its liquidity ratios over the past five years. While the current ratio improved notably in 2021, the quick ratio and cash ratio have shown more variability, suggesting potential shifts in the composition of the company's current assets. It is important for investors and stakeholders to monitor these liquidity ratios to assess LGI Homes Inc's ability to handle short-term financial challenges effectively.

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Additional liquidity measure

The cash conversion cycle of LGI Homes Inc has shown fluctuations over the past five years. In 2023, the company's cash conversion cycle was 624.52 days, indicating that it takes approximately 624 days to convert raw materials into cash from sales. This represents a decrease from the previous year's 636.51 days.

Comparing to the trend in previous years, the cycle was significantly shorter in 2021 at 345.70 days but increased in 2022 and 2023. This suggests that LGI Homes Inc may have faced challenges in managing its working capital efficiently in recent years, leading to a longer cash conversion cycle.

Overall, the increasing trend in the cash conversion cycle implies that LGI Homes Inc may be taking longer to convert its investments in inventory and receivables into cash. This could potentially impact the company's liquidity and cash flow management, highlighting the importance of effective working capital management strategies going forward.