Penske Automotive Group Inc (PAG)

Penske Automotive Group Inc's liquidity ratios, specifically the current ratio, quick ratio, and cash ratio, provide insights into the company's ability to meet its short-term financial obligations.

- Current Ratio: This ratio measures the company's ability to cover its short-term liabilities with its current assets. Penske Automotive Group's current ratio has shown a slight improvement over the years, increasing from 0.94 in 2020 to 1.00 in 2023, indicating a better ability to pay off its current debts using its current assets. However, the ratio decreased to 0.91 in 2024, potentially raising concerns about the company's liquidity position.

- Quick Ratio: The quick ratio, also known as the acid-test ratio, is a more stringent measure of liquidity as it excludes inventory from current assets. Penske Automotive Group's quick ratio has remained low and relatively stable over the years, hovering around 0.02 to 0.01. This suggests that the company may have difficulty meeting its short-term obligations without relying on inventory sales.

- Cash Ratio: The cash ratio specifically assesses the company's ability to cover its short-term liabilities with its available cash and cash equivalents. Penske Automotive Group's cash ratio mirrors its quick ratio trends, staying consistently low at 0.02 to 0.01 over the years, indicating a limited ability to pay off its short-term obligations solely with cash on hand.

Overall, while Penske Automotive Group has shown some improvement in its current ratio, the consistently low quick ratio and cash ratio may signal potential liquidity challenges, possibly necessitating a closer examination of the company's cash management and working capital strategies.

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Additional liquidity measure

The cash conversion cycle for Penske Automotive Group Inc has shown some fluctuation over the past five years. In December 2020, the company's cash conversion cycle was at 72.44 days, indicating that it took approximately 72 days for the company to convert its investments in inventory and accounts receivable into cash.

The following year, in December 2021, the cash conversion cycle decreased to 54.09 days, suggesting that the company improved its efficiency in managing cash flow and converting its assets into cash. However, in December 2022, the cycle slightly increased to 55.75 days, which could indicate a minor slowdown in cash conversion efficiency.

In December 2023, the cash conversion cycle increased further to 63.72 days, signaling a longer period for the company to convert its working capital into cash. By December 2024, the cycle continued to rise to 66.57 days, indicating a potential need for the company to focus on improving its working capital management to shorten the cash conversion cycle.

Overall, Penske Automotive Group Inc should continue monitoring and managing its cash conversion cycle to ensure efficient cash flow and optimize its working capital management in the future.