Otter Tail Corporation (OTTR)

The liquidity ratios of Otter Tail Corporation, specifically the current ratio, quick ratio, and cash ratio, provide insights into the company's ability to meet its short-term obligations with its current assets.

Looking at the current ratio, the company's ability to cover short-term liabilities with current assets has fluctuated over the past five years. In 2023 and 2022, the current ratio was 1.84 and 1.91 respectively, indicating that the company had $1.84 and $1.91 in current assets for every dollar of current liabilities. This suggests a healthy liquidity position. However, in 2021 and 2020, the current ratio dropped significantly to 0.95 and 0.54 respectively, which may indicate potential liquidity issues. In 2019, the ratio improved to 1.34, showing a more stable liquidity position compared to 2020 and 2021.

The quick ratio, which excludes inventory from current assets, offers a more conservative measure of liquidity. Otter Tail Corporation's quick ratio also experienced fluctuations over the five-year period. In 2023 and 2022, the quick ratio was 1.36 and 1.29, indicating the company had $1.36 and $1.29 in liquid assets to cover each dollar of current liabilities, showing a strong liquidity position. However, in 2021 and 2020, the quick ratio dropped to 0.57 and 0.33 respectively, suggesting a potential strain on immediate liquidity. In 2019, the quick ratio improved to 0.83, which was still below the ideal level of 1.

The cash ratio, which is the most stringent measure of liquidity, provides insight into the company's ability to cover short-term obligations with cash and cash equivalents alone. Otter Tail Corporation's cash ratio also varied significantly across the five-year period. In 2023 and 2022, the cash ratio was 0.85 and 0.68, showing an increase in the ability to cover liabilities with cash. In 2021 and 2020, the cash ratio was 0.12 and 0.07 respectively, indicating tighter liquidity constraints. In 2019, the cash ratio improved to 0.25, but still remained relatively low compared to 2023 and 2022.

Overall, the trend in Otter Tail Corporation's liquidity ratios demonstrates varying levels of liquidity over the years, ranging from strong to weak liquidity positions. Management should continue to monitor these ratios closely to ensure the company maintains an optimal liquidity position to meet its short-term obligations effectively.

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Additional liquidity measure

The cash conversion cycle of Otter Tail Corporation has exhibited fluctuations over the past five years. In 2023, the company's cash conversion cycle extended to 76.55 days, representing an increase from the previous year. This suggests that Otter Tail Corporation took longer to convert its investments in inventory into cash during the most recent period.

Compared to 2022, where the cash conversion cycle was 57.50 days, the increase in 2023 indicates a potential inefficiency in managing inventory, accounts receivable, and accounts payable. Furthermore, the current cycle is higher than the 2021 figure of 61.33 days, indicating a worsening trend in the company's cash conversion efficiency.

In contrast, the company's cash conversion cycle was notably longer in 2020 at 14.48 days and in 2019 at 26.11 days, implying that Otter Tail Corporation was more efficient in converting its assets into cash during those periods.

The fluctuation in Otter Tail Corporation's cash conversion cycle highlights the importance of effective working capital management to enhance cash flow and overall financial performance. Further analysis of the company's operational processes and financial strategies may be necessary to address the recent increase in the cash conversion cycle and improve efficiency in cash conversion activities.