L3Harris Technologies Inc (LHX)

L3Harris Technologies Inc's liquidity ratios have fluctuated over the periods under review. The current ratio, which measures the company's ability to pay its short-term obligations with current assets, has shown some variability but generally remained above 1 in recent periods, indicating that the company has sufficient current assets to cover its short-term liabilities. However, the current ratio has decreased from 1.49 in March 2022 to 0.90 in June 2024, which may raise concerns about the company's short-term liquidity position.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, has also shown fluctuations, with values ranging from 0.08 to 1.52. The quick ratio fell significantly in several periods, notably dropping to 0.08 in March 2022 and to 0.09 in June 2022, indicating potential difficulties in meeting short-term obligations without relying on inventory.

The cash ratio, which is the most conservative liquidity measure that only considers cash and cash equivalents, has also displayed variation. Although generally low compared to the current and quick ratios, the cash ratio provides insights into the company's ability to cover immediate liabilities with its most liquid assets. It is worth noting that the cash ratio decreased from 0.42 in September 2020 to 0.06 in March 2024, reflecting potential challenges in covering short-term obligations with cash alone.

In summary, L3Harris Technologies Inc's liquidity ratios have shown some fluctuation, with the current ratio generally remaining above 1, but the quick and cash ratios fluctuating to lower levels in certain periods. This suggests that while the company may have enough current assets to cover short-term obligations, there might be instances where it could face liquidity challenges, particularly when considering more stringent measures of liquidity.

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Additional liquidity measure

The cash conversion cycle of L3Harris Technologies Inc has fluctuated over the past several quarters, indicating varying efficiency in managing its working capital.

During the most recent quarter, ending June 30, 2024, the company's cash conversion cycle was 13.82 days, suggesting that on average, it takes L3Harris Technologies approximately 13.82 days to convert its investments in inventory into cash receipts from customers. This represents an improvement from the previous quarter and indicates better management of inventory and receivables.

Looking back over the past year, there have been significant fluctuations in the cash conversion cycle. In the December 31, 2023, quarter, the cycle was notably extended to 139.58 days, primarily driven by a significant increase in the number of days it took to convert inventory into sales and then collect cash from those sales. This extended cycle was followed by an even longer cycle of 161.37 days in the subsequent quarter, ending March 31, 2023, indicating potential challenges in managing working capital effectively during that period.

Some quarters have shown negative cash conversion cycles, such as the September 30, 2022, and March 31, 2022, periods, which suggest that the company was able to collect cash from customers before paying its suppliers, leading to a potential advantage in terms of cash flow management. However, it's important to note that negative cycles could also indicate aggressive payment policies towards suppliers, which may not always be sustainable in the long term.

Overall, monitoring the cash conversion cycle is crucial for evaluating how efficiently L3Harris Technologies is managing its working capital and operational processes. Trends in the cycle can provide insights into the company's liquidity, efficiency, and overall financial health.