Lowe's Companies Inc (LOW)

Lowe's Companies Inc's liquidity ratios reflect the company's ability to meet its short-term obligations.

1. Current Ratio: The current ratio indicates Lowe's ability to cover its short-term liabilities with its current assets. Lowe's current ratio has been relatively stable over the years, ranging from 1.09 to 1.23. A current ratio above 1 indicates the company has enough current assets to cover its current liabilities, with a ratio of 1.23 on January 31, 2024, suggesting improved liquidity.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity as it excludes inventory from current assets. Lowe's quick ratio has ranged from 0.08 to 0.11. A quick ratio below 1 may indicate potential difficulty in meeting short-term obligations without relying on inventory sales. The ratio trends suggest that Lowe's may have faced challenges with immediate liquidity, as seen in the quick ratio of 0.08 in both 2024 periods.

3. Cash Ratio: The cash ratio measures the company's ability to cover its current liabilities with its cash and cash equivalents alone. Lowe's cash ratio has been consistent at 0.09 or 0.11 over the years, implying that a relatively small portion of its current liabilities can be covered by cash reserves. This indicates that Lowe's relies more on other current assets to meet its short-term obligations.

In summary, Lowe's current ratio indicates overall stability in covering short-term obligations, while the quick and cash ratios reveal some challenges in immediate liquidity management, especially in 2024. Maintaining a balance between current assets and liabilities is crucial for Lowe's to ensure financial health and operational stability in the short term.

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See also:

Lowe's Companies Inc Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of Lowe's Companies Inc over the specified periods fluctuated as follows:

- As of January 31, 2023, the cash conversion cycle was 104.38 days, indicating that on average it took Lowe's 104.38 days to convert its investments in inventory into cash from sales.
- By February 3, 2023, the cycle decreased to 32.10 days, showing an improvement in the efficiency of converting inventory into cash.
- However, by January 31, 2024, the cycle increased to 107.18 days, reflecting a longer period to convert inventory into cash.
- By February 2, 2024, the cycle decreased again to 39.95 days, indicating improved efficiency.
- As of January 31, 2025, the cycle increased to 113.88 days, signifying a longer cash conversion cycle compared to the previous period.

It is essential for Lowe's to manage its cash conversion cycle effectively as it impacts liquidity and working capital efficiency. Fluctuations in this cycle may be influenced by various factors such as inventory management, sales trends, and payment terms with suppliers and customers. Further analysis and comparison with industry benchmarks can provide insights into the company's operational efficiency and effectiveness in managing its working capital.