Neogen Corporation (NEOG)

Neogen Corp.'s liquidity ratios demonstrate the company's ability to meet its short-term obligations and manage its current liabilities. The current ratio, which measures the firm's ability to pay off its short-term liabilities with its current assets, decreased from 11.75 in 2019 to 4.03 in 2023. This decline may signify a reduction in the company's current assets relative to its current liabilities. Nevertheless, the current ratio remains at a level that suggests the firm can comfortably cover its short-term obligations.

The quick ratio, a more stringent measure of liquidity as it excludes inventory from current assets, also saw a decline from 9.50 in 2019 to 3.11 in 2023. This may indicate a decrease in the company's ability to meet short-term obligations using its most liquid assets. However, the quick ratio remains at a level that indicates a strong ability to cover short-term liabilities without relying on inventory sales.

The cash ratio, which provides the most conservative measure of liquidity by only considering cash and cash equivalents, decreased from 7.35 in 2019 to 2.05 in 2023. Although the decline suggests a reduction in the company's immediate ability to cover current liabilities with its cash holdings, the cash ratio remains at a level that indicates the company has a sufficient level of cash on hand to meet its short-term obligations.

Overall, while the trend of declining liquidity ratios raises the possibility of decreased short-term financial flexibility, Neogen Corp. still exhibits a strong ability to meet its current obligations and effectively manage its short-term liabilities. It will be important to closely monitor these ratios to ensure that the firm's liquidity position remains robust.

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Additional liquidity measure

The cash conversion cycle of Neogen Corp. has shown a decreasing trend over the past five years. In the most recent fiscal year ending on May 31, 2023, the cash conversion cycle decreased to 118.09 days from 181.67 days in the previous year. This suggests that the company is managing its operating cycle more efficiently, turning its inventory into cash more quickly and reducing the time it takes to collect its accounts receivable. A lower cash conversion cycle indicates that Neogen Corp. has improved its liquidity and working capital management, which can lead to better financial performance and reduced financing needs. Overall, the decreasing trend in the cash conversion cycle demonstrates potential operational improvements in managing inventories and receivables within the company.