Powell Industries Inc (POWL)

The liquidity ratios of Powell Industries, Inc. have shown a declining trend over the past five years, indicating a potential decrease in the company's ability to meet its short-term obligations with its current assets.

The current ratio, which measures short-term solvency by comparing current assets to current liabilities, has decreased from 2.50 in 2021 to 1.57 in 2023. This suggests that the company may have a reduced capacity to cover its short-term liabilities with its current assets.

Similarly, the quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, has also experienced a decline from 2.25 in 2021 to 1.41 in 2023. This indicates a potential weakening in the company's ability to meet its immediate obligations without relying on the sale of inventory.

Furthermore, the cash ratio, representing the ability to cover current liabilities using only cash and cash equivalents, has also shown a downward trend from 1.60 in 2021 to 0.89 in 2023, suggesting a decrease in the company's ability to settle its short-term debts with readily available cash.

Overall, the decreasing trend in these liquidity ratios may raise concerns about Powell Industries, Inc.'s ability to effectively manage its short-term financial obligations and may warrant a closer examination of its working capital management and potential liquidity constraints. It's important for the company to take proactive measures to address this trend and improve its liquidity position to mitigate potential financial risks.

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Additional liquidity measure

The cash conversion cycle of Powell Industries, Inc. has shown fluctuations over the past five years. In Sep 30, 2023, the cash conversion cycle increased to 112.64 days from 62.19 days in Sep 30, 2022. This significant increase indicates an elongation in the time it takes for the company to convert its investments in inventory and other resources into cash from sales. This may suggest potential inefficiencies in inventory management or a slowdown in the collection of receivables, which could negatively impact the company's working capital and overall liquidity. Furthermore, the current cash conversion cycle is also higher than the figures from Sep 30, 2029 and Sep 30, 2020, showing a potential worsening trend in the management of the company's operating cycle.

It is advised that Powell Industries, Inc. closely monitors its inventory turnover, accounts receivable collection period, and accounts payable payment period to identify areas for improvement in its cash conversion cycle and overall working capital management.