PACCAR Inc (PCAR)

PACCAR Inc's liquidity ratios provide insights into the company's ability to meet its short-term financial obligations.

1. Current Ratio: This ratio measures the company's ability to pay off its short-term liabilities with its current assets. PACCAR's current ratio has shown significant fluctuations over the years, ranging from a high of 1,345.86 in 2023 to a low of 100.82 in 2021. A current ratio above 1 indicates that the company has more current assets than current liabilities, which is generally considered favorable. However, such extreme fluctuations may indicate variability in the company's liquidity position.

2. Quick Ratio: 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 fluctuated over the years as well, with values ranging between 194.85 and 431.84. A quick ratio above 1 suggests that the company can cover its short-term obligations without relying on selling inventory, which is positive for liquidity.

3. Cash Ratio: The cash ratio is the most conservative liquidity ratio as it only considers the company's cash and cash equivalents in relation to its current liabilities. PACCAR's cash ratio has remained relatively stable over the years, indicating the company's ability to cover its short-term obligations with cash on hand.

In conclusion, while PACCAR Inc has shown varying liquidity ratios over the years, the company overall appears to have a solid liquidity position, as evidenced by its current, quick, and cash ratios. Investors and stakeholders should continue to monitor these ratios to ensure the company's ability to meet its short-term financial commitments.

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Additional liquidity measure

The cash conversion cycle of PACCAR Inc has exhibited significant fluctuations over the past five years. In December 2020, the company had a cash conversion cycle of 401.65 days, indicating that it took approximately 401.65 days to convert its investments in raw materials into cash from sales.

By December 2021, the cash conversion cycle had increased substantially to 762.01 days, suggesting a longer period between the company's outflows for production and inflows from sales. This prolonged cycle could potentially strain PACCAR's cash flow and working capital management.

The trend continued to worsen in the following years, with the cash conversion cycle peaking at 959.69 days by December 2023. This prolonged cycle may indicate inefficiencies in the company's operations, such as inventory management or collection of receivables, leading to cash being tied up for extended periods.

However, by December 2024, there was a significant improvement in the cash conversion cycle, plummeting to just 31.05 days. This drastic reduction suggests that PACCAR has possibly implemented more effective working capital management strategies or streamlined its production and sales processes, resulting in quicker cash conversion.

Overall, the fluctuating trend in PACCAR Inc's cash conversion cycle highlights the importance of closely monitoring working capital efficiency and implementing strategies to optimize the cash conversion process for sustained financial health and performance.