Lumen Technologies Inc (LUMN)

Lumen Technologies Inc's liquidity ratios, specifically the current ratio, quick ratio, and cash ratio, have displayed fluctuations over the period under review.

The current ratio, which measures the company's ability to cover its short-term obligations with its current assets, shows a declining trend from March 2020 to December 2020, indicating potential liquidity concerns during this period. However, from March 2021 onwards, the current ratio steadily improves, surpassing the ideal level of 1.0 in September 2021 and remaining above 1.0 until December 2024. This indicates an enhanced capacity to meet short-term obligations as the current assets strengthen relative to current liabilities.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also exhibits a downward trend from March 2020 to December 2020, falling to low levels. Subsequently, the quick ratio shows improvement, although with fluctuations, reaching healthier levels above 0.5 from December 2023 onwards. This suggests an enhanced ability to meet short-term obligations without relying on inventory liquidation.

The cash ratio, which assesses the company's ability to cover immediate obligations with cash and cash equivalents, follows a similar pattern to the quick ratio. It declines from March 2020 to December 2020, remains at low levels, and then improves notably from December 2023 onwards, indicating a stronger ability to settle short-term liabilities with readily available funds.

Overall, the liquidity ratios of Lumen Technologies Inc have shown a mixed performance over the period. While there were liquidity challenges in the earlier years, the company's liquidity position improved in the later years, demonstrating a better capacity to meet short-term obligations. However, monitoring these ratios consistently is crucial to ensure sustained liquidity health.

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Additional liquidity measure

The cash conversion cycle measures the efficiency of Lumen Technologies Inc in managing its cash flows related to its operations. It is calculated by adding the days inventory outstanding to the days sales outstanding and then subtracting the days payable outstanding.

Based on the provided data, we observe fluctuations in Lumen Technologies Inc's cash conversion cycle over the past few years. The trend indicates that the company's cash conversion cycle has been relatively stable from March 2020 to December 2023, ranging from around 4 to 11 days. However, there is a notable increase in the cash conversion cycle from March 2024 to December 2024, decreasing from 11.46 days to 6.50 days.

A lower cash conversion cycle typically indicates that the company is managing its working capital more efficiently, collecting cash from customers quickly, and minimizing the time between paying suppliers and receiving payments. Conversely, a higher cash conversion cycle may signify potential liquidity or operational issues, such as delays in collecting receivables or extending payment terms.

In the case of Lumen Technologies Inc, the decreasing trend in the cash conversion cycle from March 2024 to December 2024 may suggest that the company has improved its cash management practices, leading to faster conversion of inventory and receivables into cash. However, a thorough analysis of the company's financial performance and operational efficiency is necessary to fully understand the factors driving these changes in the cash conversion cycle.