Planet Fitness Inc (PLNT)

Planet Fitness Inc's liquidity ratios have shown some fluctuations over the past five years.

1. Current Ratio: This ratio indicates the company's ability to cover its short-term obligations with its current assets. The current ratio has decreased from 5.07 in 2020 to 2.08 in 2024. While the ratio is still above 1, implying the company can cover its current liabilities, the downward trend may indicate potential challenges in meeting short-term obligations.

2. Quick Ratio: The quick ratio measures the company's ability to meet short-term liabilities with its most liquid assets (excluding inventory). The quick ratio also shows a declining trend from 4.27 in 2020 to 1.78 in 2024. This suggests that the company may have a lower ability to cover its immediate liabilities with its most liquid assets alone.

3. Cash Ratio: The cash ratio specifically focuses on the company's ability to cover its current liabilities with cash and cash equivalents. The cash ratio has decreased from 3.93 in 2020 to 1.44 in 2024. This decline indicates a weakening ability to use cash on hand to meet short-term obligations.

Overall, the decreasing trend in all three liquidity ratios raises concerns about Planet Fitness Inc's liquidity position. Management should closely monitor these ratios and take appropriate actions to maintain a healthy level of liquidity to manage short-term obligations effectively.

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Additional liquidity measure

The cash conversion cycle for Planet Fitness Inc has displayed a significant improvement over the years, reflecting the company's effective management of working capital and operational efficiency.

As of December 31, 2020, the cash conversion cycle stood at 7.51 days, indicating that it took the company approximately 7.51 days to convert its investments in inventory and receivables into cash.

Subsequently, there was a notable enhancement in efficiency as the cash conversion cycle decreased to -5.99 days by December 31, 2021. This negative value suggests that the company was able to convert its investments into cash at a faster rate than the time it took to pay its suppliers, which is a favorable sign.

The trend continued with further improvements in the cash conversion cycle, reaching -3.03 days by December 31, 2022, indicating a more rapid conversion of working capital into cash.

By December 31, 2023, the cash conversion cycle exhibited a considerable decrease to -15.85 days, demonstrating enhanced liquidity management and operational effectiveness.

Finally, as of December 31, 2024, the cash conversion cycle reached its lowest point at -19.65 days, showcasing Planet Fitness Inc's ability to swiftly convert its assets into cash, streamline its operations, and potentially negotiate beneficial credit terms with suppliers.

Overall, the consistent reduction and negative values of the cash conversion cycle reflect Planet Fitness Inc's efficient working capital management and strong cash flow position.