Raytheon Technologies Corp (RTX)

The liquidity ratios of RTX Corp, including the current ratio, quick ratio, and cash ratio, provide insight into the company's ability to meet its short-term financial obligations.

The current ratio measures the company's ability to pay off its current liabilities with its current assets. RTX Corp's current ratio has been on a decreasing trend from 1.21 in 2020 to 1.04 in 2023. While the current ratio of 1.04 indicates that the company has just enough current assets to cover its current liabilities, the declining trend raises concerns about its liquidity position.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventories from current assets. RTX Corp's quick ratio has followed a similar trend as the current ratio, declining from 0.95 in 2020 to 0.78 in 2023. A quick ratio of 0.78 suggests that the company may struggle to meet its short-term obligations without relying on inventory liquidation.

The cash ratio, the most conservative liquidity measure, evaluates the company's ability to cover its current liabilities using only cash and cash equivalents. RTX Corp's cash ratio has decreased from 0.69 in 2020 to 0.55 in 2023. A cash ratio of 0.55 implies that the company's cash holdings may not be sufficient to meet its current obligations, potentially indicating a cash flow challenge.

Overall, the declining trend in RTX Corp's liquidity ratios, including the current ratio, quick ratio, and cash ratio, raises concerns about its ability to meet short-term obligations without facing liquidity constraints. The company may need to review its working capital management and cash flow strategies to improve its liquidity position and ensure financial stability.

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See also:

Raytheon Technologies Corp Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of RTX Corp has shown fluctuations over the past five years. In 2023, the company's cash conversion cycle increased to 64.33 days compared to 54.49 days in 2022. This suggests that RTX Corp took longer to convert its investments in raw materials and other inputs into cash from sales of the final products.

The longer cash conversion cycle in 2023 could indicate inefficiencies in inventory management, accounts receivable collection, or delays in paying accounts payable. It is worth noting that RTX Corp managed to reduce its cash conversion cycle in 2022 compared to 2021, but then experienced an increase in 2023.

Overall, RTX Corp should focus on addressing the factors contributing to the lengthening of its cash conversion cycle in order to improve liquidity and operational efficiency.