Meritage Corporation (MTH)

Based on the provided data, Meritage Corporation's liquidity position has shown both strengths and fluctuations over the years.

The current ratio, which measures the company's ability to cover short-term liabilities with its current assets, has been consistently strong and improving from 7.42 in 2020 to 9.38 in 2023, indicating that Meritage has a robust ability to meet its short-term obligations.

On the other hand, the quick ratio, also known as the acid-test ratio, compares the company's most liquid assets to its current liabilities. This ratio shows a bit of variability, with a notable drop in 2021 to 1.05 but then recovering to 1.44 in 2023, which indicates the company's improved ability to meet its short-term obligations without relying on inventory.

The cash ratio, which is the most conservative liquidity measure since it considers only cash and cash equivalents, follows a similar trend to the quick ratio. The ratio increased from 1.50 in 2020 to 3.07 in 2024, suggesting that Meritage has a healthy cash position to cover its immediate liabilities.

Overall, Meritage Corporation appears to have a strong liquidity position, as evidenced by its high current ratios and improving quick and cash ratios over the years. This indicates that the company is generally well-equipped to meet its short-term financial obligations and has a solid cash position to weather any unforeseen liquidity challenges.

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Additional liquidity measure

The cash conversion cycle of Meritage Corporation has shown some fluctuation over the past five years. In 2020, the company's cash conversion cycle was 287.22 days, indicating that it took Meritage 287.22 days on average to convert its investments in inventory and other resources into cash flows from sales.

By the end of 2021, the cash conversion cycle had increased to 367.20 days, suggesting that Meritage took longer to convert its resources into cash compared to the previous year. This could be indicative of inefficiencies in managing inventory or extending credit terms to customers.

In 2022, the cash conversion cycle improved to 353.88 days, showing a reduction in the time taken to convert investments into cash inflows. This improvement might be attributed to better inventory management practices or quicker collection of accounts receivable.

However, by the end of 2023, the cash conversion cycle increased again to 373.74 days, indicating a slowdown in the conversion of resources into cash. This increase could be due to various factors such as delays in receiving payments from customers or higher levels of inventory.

By the end of 2024, the cash conversion cycle reached 437.08 days, the highest over the five-year period. This significant increase suggests that Meritage faced challenges in efficiently managing its working capital and converting its investments into cash within a reasonable timeframe.

Overall, the fluctuations in Meritage Corporation's cash conversion cycle over the years highlight the importance of effectively managing working capital to ensure optimal cash flow efficiency and operational performance. It may be beneficial for the company to assess its inventory, accounts receivable, and accounts payable processes to identify areas for improvement and enhance its cash conversion cycle in the future.