RH (RH)
Liquidity ratios
| Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | |
|---|---|---|---|---|---|
| Current ratio | 1.26 | 2.84 | 2.91 | 0.87 | 0.61 |
| Quick ratio | 0.23 | 1.79 | 2.11 | 0.19 | 0.10 |
| Cash ratio | 0.14 | 1.70 | 2.05 | 0.11 | 0.05 |
The analysis of RH's liquidity ratios over the past five years indicates fluctuations in the company's ability to meet its short-term obligations.
The current ratio, which measures the firm's ability to cover its short-term liabilities with its current assets, has shown significant variability. RH's current ratio was highest in January 2022 at 2.91, indicating a strong ability to meet its short-term obligations. However, in the following year, the current ratio decreased to 0.87, raising concerns about the company's liquidity position. It improved in February 2024 to 1.26 but still remains below the levels seen in 2022.
The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also shows fluctuations. RH's quick ratio was highest in January 2022 at 2.11, indicating a strong ability to meet short-term obligations without relying on inventory. However, the quick ratio dropped significantly in February 2024 to 0.23, signaling a potential liquidity strain.
The cash ratio, which is the most conservative liquidity ratio, reflects the company's ability to cover current liabilities with its cash and cash equivalents. RH's cash ratio peaked in January 2022 at 2.05, demonstrating a strong ability to settle short-term obligations with cash on hand. However, the cash ratio decreased to 0.14 in February 2024, indicating a lower level of cash available relative to current liabilities.
Overall, RH's liquidity ratios demonstrate a mixed performance over the past five years, with fluctuations in the company's ability to meet short-term obligations. Investors and stakeholders should closely monitor these ratios to assess the company's liquidity position and its ability to weather potential financial challenges in the future.
See also:
Additional liquidity measure
| Feb 3, 2024 | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 77.43 | 80.62 | 64.78 | 52.82 | 46.18 |
The cash conversion cycle of RH has fluctuated over the past five years, with a general increasing trend. The cycle was 77.43 days in 2024, slightly lower than the previous year's 80.62 days. However, this is higher compared to 2022 and 2021, where the cycle was 64.78 days and 52.82 days respectively. The shortest cash conversion cycle in the period analyzed was in 2020 at 46.18 days.
This indicates that RH has been taking longer to convert its investments in inventory into cash receipts from customers in recent years. A longer cash conversion cycle may signify inefficiencies in managing inventory, collecting receivables, or delaying payables, potentially tying up more cash in the operating cycle. It would be beneficial for RH to analyze the underlying reasons for the increase in the cash conversion cycle and implement strategies to optimize working capital and improve cash flow efficiency.