Perrigo Company PLC (PRGO)

Perrigo Company PLC's liquidity ratios, as indicated by the current ratio, quick ratio, and cash ratio, have exhibited fluctuations over the reported periods.

The current ratio, which measures the company's ability to cover its short-term obligations with its current assets, improved from 1.86 in March 2020 to a peak of 4.01 in March 2022, suggesting a stronger liquidity position. However, it subsequently decreased to 1.79 by December 2023 and remained relatively stable around 2.38 by December 2024. Overall, the current ratio indicates that Perrigo has generally maintained a level of current assets to cover its current liabilities.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Perrigo's quick ratio has shown significant variability, with a noticeable increase from 0.31 in March 2020 to 2.00 in March 2022, reflecting a substantial improvement in the company's ability to meet its short-term obligations without relying on inventory. The quick ratio then declined to 0.42 by March 2024 but remained above 1 in some periods, indicating a sufficient ability to cover immediate liabilities.

The cash ratio, which is the most conservative liquidity ratio, considers only cash and cash equivalents to assess a company's ability to pay off its current liabilities. Perrigo's cash ratio mirrored the trends seen in the quick ratio, showing an increase from 0.31 in March 2020 to 2.00 in March 2022 before decreasing to 0.36 by June 2024. This indicates that Perrigo has maintained a strong cash position relative to its current liabilities over the reporting periods.

In conclusion, while Perrigo Company PLC has experienced fluctuations in its liquidity ratios, particularly in the quick and cash ratios, the company has generally maintained a satisfactory liquidity position with the ability to meet its short-term obligations. However, investors and analysts should continue to monitor these ratios to ensure the company's liquidity remains stable and sufficient.

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Additional liquidity measure

The cash conversion cycle (CCC) measures how long it takes for a company to convert its investments in inventory into cash inflows from sales. For Perrigo Company PLC based on the provided data, we can see fluctuations in the CCC over the periods presented.

The CCC for Perrigo ranged from 106.29 days to 147.40 days over the observation period. Generally, a shorter CCC indicates better efficiency in managing working capital as it implies that the company is able to convert its resources into cash more quickly.

Looking at the trend, we observe that the CCC initially increased from 106.29 days in March 2020 to a peak of 147.40 days in September 2024 before declining slightly to 139.51 days by December 2024. This increase in the CCC may suggest potential issues in managing inventory, receivables, or payables during the period, leading to a longer cash conversion process.

It is essential to analyze the individual components of the CCC, namely the days inventory outstanding (DIO), days sales outstanding (DSO), and days payables outstanding (DPO), to pinpoint specific areas that may be impacting Perrigo's cash conversion cycle. By understanding the contributing factors to the CCC, the company can take appropriate measures to improve working capital management and enhance overall financial efficiency.