Parker-Hannifin Corporation (PH)

The liquidity position of Parker-Hannifin Corporation, as reflected by its key liquidity ratios over the specified period, exhibits notable fluctuations that warrant detailed examination.

Current Ratio Analysis:
The current ratio, which measures the company's ability to meet short-term obligations with its short-term assets, initially demonstrated a gradual increase from 1.46 as of September 30, 2020, reaching a peak of 2.06 on June 30, 2022. Post this period, there was a consistent decline, with the ratio falling below 1.0 during the June 30, 2023, to September 30, 2024, interval, indicating a potential weakening of liquidity. By September 30, 2023, the ratio stood at 0.89, and further declined slightly to 0.90 by December 31, 2023. While marginal improvements are observed subsequently, the ratio remains below the generally acceptable threshold of 1.0, signaling that current liabilities may temporarily exceed current assets.

Quick Ratio Analysis:
The quick ratio, which provides a more stringent measure by excluding inventory from current assets, exhibits a similar pattern. It experienced growth from 0.88 at September 30, 2020, peaked around 1.07 on June 30, 2021, but subsequently declined to levels below 0.5 between June and December 2023. As of September 30, 2023, the quick ratio was 0.47, indicating that the company's most liquid assets—excluding inventory—were insufficient to cover immediate liabilities. Slight improvements occurred in later periods, with ratios edging towards 0.63 by June 30, 2025, but they remained below the 1.0 threshold throughout the analyzed timeframe.

Cash Ratio Analysis:
The cash ratio, reflecting immediate liquidity through cash and cash equivalents, is the most conservative measure among the three. It remained consistently low, generally below 0.3, with a downward trend observed from 0.23 on September 30, 2020, to as low as 0.05 on December 31, 2023. Minor increases are noted in the latest periods, reaching 0.08 by June 30, 2025. Despite these slight recoveries, the cash ratio indicates a limited capacity for the company to cover short-term liabilities instantaneously using cash and cash equivalents alone.

Overall Interpretation:
The data portray a trend of diminishing liquidity buffers over time. The decline in both current and more conservative ratios suggests increased pressure on short-term financial health, particularly evident from mid-2022 onwards. The ratios consistently below critical thresholds imply potential liquidity challenges, especially in the most immediate liquidity measures. While there have been some stabilization and minor improvements in recent periods, the ratios do not currently indicate a robust liquidity position for Parker-Hannifin Corporation. This evolving liquidity situation warrants ongoing monitoring and may require strategic adjustments to ensure sufficient liquidity to meet near-term obligations.

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See also:

Parker-Hannifin Corporation Liquidity Ratios (Quarterly Data)

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Additional liquidity measure

The cash conversion cycle (CCC) of Parker-Hannifin Corporation has exhibited some fluctuations over the observed period from September 2020 to June 2025. In September 2020, the CCC was approximately 77.21 days, indicating that it took just over 77 days for the company to convert its investments in inventory and receivables into cash, net of the period it delayed payments to suppliers. Over the subsequent quarters, the CCC remained relatively stable with minor variations, oscillating between approximately 74.15 days in September 2021 and around 83.07 days in March 2022, reflecting a consistent operational efficiency in managing working capital.

Significant changes are evident starting from late 2022, with the CCC increasing notably to over 104.98 days in September 2022, suggesting a lengthening in the overall cycle—potentially due to longer receivables collection periods, extended inventory turnover, or postponements in accounts payable. This upward trend continued into December 2022 and persisted into early 2023, where the CCC hovered around 96.40 to 99.52 days, indicating a prolonged period to convert operational assets into cash.

Subsequently, there was a gradual reduction in the cycle length through mid-2023, reaching around 81.28 days in June 2024. The cycle remained relatively stable in the latter part of 2024, with values close to 79.54 days in December 2024 and approximately 82.30 days in March 2025. This indicates some improvement in operational efficiency or changes in working capital management strategies, leading to a shortened cycle compared to the peak in late 2022.

Overall, the observed data depict a pattern of increased working capital tightness during late 2022, followed by a normalization trend towards mid-2024. The fluctuations suggest that the company's liquidity management and operational policies on inventory, receivables, and payables have undergone adjustments, impacting the duration of cash conversion. The cycle's current levels imply a relatively stable but sensitive balance in managing the timing of cash flows associated with operating activities.