Novanta Inc (NOVT)

Novanta Inc's liquidity ratios have shown fluctuations over the years. The current ratio, which measures the firm's ability to cover short-term liabilities with current assets, decreased from 2.66 in 2020 to 2.03 in 2021, before showing an improvement to 2.56 in 2022, and further to 2.98 in 2023, drifting down to 2.58 in 2024. This indicates the company had more than enough current assets to cover its short-term obligations in most years, although there was a slight dip in 2021.

The quick ratio, which provides a more conservative measure of liquidity by excluding inventories from current assets, also saw a similar trend. It decreased from 1.75 in 2020 to 1.27 in 2021, improved to 1.45 in 2022, rose further to 1.76 in 2023, before slightly dropping to 1.58 in 2024. This indicates that Novanta Inc may have faced some challenges in meeting its short-term obligations without relying on inventory in 2021 but showed improvement in subsequent years.

The cash ratio, which is the most stringent measure of liquidity as it only considers cash and cash equivalents, declined from 1.09 in 2020 to 0.64 in 2021, before dropping further to 0.61 in 2022, saw an increase to 0.75 in 2023, and then decreased to 0.68 in 2024. This suggests that Novanta Inc had lower ability to cover its current liabilities with its cash and cash equivalents in 2021 and 2022, before showing slight improvements in 2023 and then decreasing again in 2024.

Overall, while Novanta Inc generally maintained healthy liquidity positions over the years, there were some fluctuations in its ability to meet short-term obligations, with 2021 being a challenging year. Continuous monitoring and management of liquidity will be essential for the company to ensure its financial stability and operational continuity.

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Additional liquidity measure

The cash conversion cycle of Novanta Inc has displayed fluctuations over the past five years. As of December 31, 2020, the company's cash conversion cycle was 82.93 days, indicating that it took approximately 83 days for Novanta to convert its investments in inventory and accounts receivable into cash.

By December 31, 2021, the cash conversion cycle had increased to 94.68 days, suggesting a delay in the conversion of resources into cash. This trend continued into 2022, with a further increase to 106.93 days.

However, by December 31, 2023, there was a slight improvement in the cash conversion cycle, which stood at 105.35 days. This improvement was followed by a decrease in the cycle to 90.02 days as of December 31, 2024, indicating a more efficient utilization of resources to generate cash.

Overall, Novanta Inc has experienced fluctuations in its cash conversion cycle over the past five years, with efforts made to shorten the cycle and improve cash flow efficiency. Monitoring and managing the cash conversion cycle is crucial for the company to optimize working capital management and enhance financial performance.