Lamb Weston Holdings Inc (LW)

Lamb Weston Holdings Inc's liquidity ratios have shown a declining trend over the past five years. The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, decreased from 2.25 in 2020 to 1.29 in 2024. This indicates a weakening ability to meet its short-term obligations with its current assets.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also exhibited a downward trend. It dropped from 1.66 in 2020 to 0.50 in 2024, indicating a significant decline in the company's ability to quickly cover its short-term liabilities without relying on inventory.

Furthermore, the cash ratio, which signifies the company's ability to cover its current liabilities with its cash and cash equivalents, has dramatically decreased over the years. From 1.33 in 2020, the cash ratio plunged to a low of 0.04 in 2024, suggesting a substantial reduction in the company's cash reserves relative to its short-term obligations.

Overall, the declining trend in Lamb Weston Holdings Inc's liquidity ratios raises concerns about its ability to meet its short-term financial obligations in the future. Management may need to closely monitor and potentially take steps to improve the company's liquidity position to mitigate any potential liquidity risks.

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Additional liquidity measure

The cash conversion cycle of Lamb Weston Holdings Inc has fluctuated over the past five years. In the most recent fiscal year, ending May 26, 2024, the company's cash conversion cycle decreased to 62.59 days from 73.30 days in the previous year. This indicates that the company on average takes around 62.59 days to convert its investments in inventory and other resources into cash flows from sales.

Comparing this to previous years, the cash conversion cycle was lower in fiscal year 2022 at 57.52 days but higher in fiscal years 2021 and 2020 at 65.11 days and 60.25 days, respectively. This fluctuation suggests some variability in the efficiency of Lamb Weston Holdings Inc's working capital management over the years.

Overall, a lower cash conversion cycle indicates that the company is able to efficiently manage its cash flow and convert its resources into revenue quicker, potentially signaling effective inventory management and strong sales performance. In contrast, a higher cash conversion cycle may suggest delays in converting investments into cash or challenges in optimizing working capital efficiency.