Louisiana-Pacific Corporation (LPX)

Louisiana-Pacific Corporation's liquidity ratios reflect its ability to meet short-term obligations and cover immediate financial needs.

The current ratio, which measures the company's ability to pay off current liabilities with current assets, shows a fluctuating trend over the years. It decreased from 3.47 in 2020 to 2.54 in 2021 and remained at the same level in 2022, then improved to 3.00 in 2023 but slightly declined to 2.86 in 2024. A current ratio above 1 indicates that the company has more current assets than current liabilities, with a higher value typically considered better for liquidity.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also exhibits a downward trend. It decreased from 2.55 in 2020 to 1.50 in 2021 and continued to decline slightly in 2022 and 2023 to 1.48 and 1.46, respectively, before slightly improving to 1.58 in 2024. A quick ratio above 1 indicates that the company can cover its current liabilities without relying on the sale of inventory.

The cash ratio, which focuses solely on the ability to cover current liabilities with cash and cash equivalents, shows a decrease over the years. It decreased from 1.91 in 2020 to 1.02 in 2021, then increased in 2022 to 1.10 but dropped to 0.86 in 2023, before rising to 1.14 in 2024. A higher cash ratio is generally preferred as it indicates a stronger ability to meet short-term obligations using available cash.

Overall, while the company's liquidity ratios demonstrate a fluctuating pattern, the current and quick ratios generally indicate a stable liquidity position with assets to cover liabilities. However, the downward trend in these ratios over some years and the variability in the cash ratio suggest that close monitoring of liquidity is important for Louisiana-Pacific Corporation to ensure its ability to meet short-term financial obligations.

---

Additional liquidity measure

Louisiana-Pacific Corporation's cash conversion cycle, a key measure of efficiency in managing its working capital, has shown fluctuations over the past five years.

As of December 31, 2020, the cash conversion cycle stood at 88.36 days. Over the subsequent years, the company made improvements in managing its working capital, with the cycle decreasing to 67.74 days by December 31, 2021, and further to 64.24 days by December 31, 2022. This indicates that the company was efficiently converting its investments in raw materials and production into cash receipts from sales.

However, by December 31, 2023, the cash conversion cycle increased to 91.32 days, suggesting a potential slowdown in the company's cash generation process. This may have resulted from factors such as changes in sales patterns, extended payment terms with customers, or delays in inventory turnover.

By December 31, 2024, Louisiana-Pacific Corporation managed to trim the cash conversion cycle to 78.04 days, indicating a partial recovery in its working capital efficiency but still above the levels seen in 2022.

Overall, the trend in the cash conversion cycle suggests that Louisiana-Pacific Corporation has experienced fluctuations in its working capital management over the past five years, highlighting the importance of closely monitoring and managing the components of the cash conversion cycle to sustain efficient operations and support financial performance.