PACCAR Inc (PCAR)

Liquidity ratios provide insight into a company's ability to meet its short-term obligations using its current assets. Looking at Paccar Inc.'s liquidity ratios over the past five years, we can observe a positive trend indicating an improvement in the company's liquidity position.

The current ratio, which measures the company's ability to cover short-term liabilities with its current assets, has been steadily increasing from 1.28 in 2019 to 1.46 in 2023. This suggests that Paccar has been able to enhance its ability to meet its short-term obligations over the years.

Similarly, the quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Paccar's quick ratio has also shown a consistent improvement, rising from 1.20 in 2019 to 1.32 in 2023. This indicates that the company has been able to cover its short-term liabilities more effectively without relying on the sale of inventory.

The cash ratio, which is the most conservative liquidity ratio as it only considers cash and cash equivalents to cover current liabilities, has also shown an increasing trend for Paccar. The company's cash ratio has increased from 0.35 in 2019 to 0.42 in 2023, reflecting a stronger ability to meet immediate obligations solely based on cash holdings.

Overall, Paccar Inc.'s liquidity ratios demonstrate a positive trajectory, indicating an improvement in the company's ability to cover its short-term obligations. This trend suggests that Paccar has been managing its current assets effectively to ensure liquidity and meet its short-term financial commitments.

---

Additional liquidity measure

The cash conversion cycle of Paccar Inc. experienced fluctuations over the past five years. In 2023, it increased to 217.75 days from 207.35 days in 2022, indicating that the company took longer to convert its resources into cash. Despite this increase, the cycle was still shorter than in 2020 when it reached 254.82 days. Comparing to 2019, the cycle was longer in 2023. Overall, Paccar Inc. should focus on managing its accounts receivable, inventory, and accounts payable more efficiently to potentially shorten its cash conversion cycle and improve its liquidity position.