Neogen Corporation (NEOG)

Neogen Corporation has shown a declining trend in its liquidity ratios over the past few years.

The current ratio, which measures the company's ability to cover short-term liabilities with its current assets, has decreased from a high of 12.97 in November 2020 to 3.91 in February 2025. This downward trend indicates that Neogen may be facing challenges in meeting its short-term obligations using its current assets.

Similarly, the quick ratio, which excludes inventory from current assets to provide a more conservative measure of liquidity, has also shown a consistent decrease over the years. The quick ratio dropped from 14.97 in November 2020 to 0.90 in February 2025. This significant decline suggests that Neogen may have limited ability to settle its current liabilities without relying on inventory.

Lastly, the cash ratio, which measures the company's ability to cover current liabilities with its cash and cash equivalents, has experienced a similar decline. The cash ratio fell from 14.97 in November 2020 to 0.90 in February 2025, indicating that Neogen's cash position relative to its current liabilities has weakened significantly.

Overall, the decreasing trend in Neogen Corporation's liquidity ratios raises concerns about its ability to meet short-term financial obligations. It suggests that the company may need to closely monitor and manage its working capital and cash flow to improve its liquidity position and financial stability in the future.

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Additional liquidity measure

The cash conversion cycle of Neogen Corporation has fluctuated over the years, indicating varying efficiency in managing its working capital. The cycle measures the time it takes for the company to convert its resources invested in inventory and accounts receivable into cash inflows from sales.

From May 31, 2020, to August 31, 2021, the cash conversion cycle showed a gradual decline, ranging from 156.36 days to 141.88 days. This suggested an improvement in the company's ability to convert its resources into cash.

However, from August 31, 2021, to August 31, 2022, the cycle increased from 141.88 days to 164.72 days, indicating a potential slowdown in managing working capital efficiently during that period.

Subsequently, from August 31, 2022, to May 31, 2023, there was a significant improvement in the cash conversion cycle, dropping from 164.72 days to 117.27 days. This improvement suggested a more effective management of inventory and accounts receivable to convert them into cash.

Overall, monitoring and managing the cash conversion cycle is crucial for Neogen Corporation to optimize its working capital and ensure consistent cash flow generation from operational activities.