Sally Beauty Holdings Inc (SBH)

Sally Beauty Holdings Inc's liquidity ratios, including the current ratio, quick ratio, and cash ratio, provide insight into the company's ability to meet its short-term obligations and manage its current assets efficiently.

The current ratio, which measures the company's ability to cover short-term obligations with its current assets, has shown a stable trend over the quarters, ranging from 1.70 to 2.20. A current ratio above 1 indicates that the company has more current assets than current liabilities, with a higher ratio indicating a stronger ability to meet short-term obligations. Sally Beauty's current ratio has generally been healthy and above 1.5, indicating a good level of liquidity to cover short-term liabilities.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Sally Beauty's quick ratio has been relatively low, ranging from 0.29 to 0.59. A quick ratio below 1 indicates potential difficulty in meeting short-term obligations without relying on selling inventory, although a quick ratio above 0.20 is typically considered acceptable for most industries. The lower quick ratio may be a concern, suggesting that a significant portion of Sally Beauty's current assets are tied up in inventory.

The cash ratio, which is the most conservative liquidity measure, focuses solely on the company's cash and cash equivalents compared to its current liabilities. Sally Beauty's cash ratio has also been relatively low, ranging from 0.17 to 0.48. A cash ratio below 0.2 may indicate a risk of liquidity problems, but Sally Beauty has generally maintained a cash ratio above this threshold. However, the decreasing trend in the cash ratio over the quarters suggests a potential decrease in the company's ability to cover short-term obligations with cash alone.

In conclusion, while Sally Beauty Holdings Inc has demonstrated good liquidity overall, with a current ratio consistently above 1 and maintaining a cash ratio above the critical threshold, the declining trend in the quick and cash ratios warrants monitoring. The company may need to assess its inventory management and cash position to ensure continued ability to meet its short-term obligations effectively.

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Additional liquidity measure

The cash conversion cycle of Sally Beauty Holdings Inc has been relatively stable over the past eight quarters, ranging from 134.07 days to 155.72 days. The company's cash conversion cycle measures the time it takes to convert its investments in inventory into cash flows from sales.

A longer cash conversion cycle indicates that the company takes longer to sell its inventory and collect cash from customers, which can tie up working capital. In contrast, a shorter cash conversion cycle implies that the company is more efficient in managing its inventory and collecting cash.

Sally Beauty's cash conversion cycle peaked in Q1 2024 at 155.72 days, reflecting a lengthening period between holding inventory, making sales, and collecting cash. Conversely, the lowest cash conversion cycle was recorded in Q4 2022 at 134.07 days, indicating improved efficiency in managing inventory and cash flows.

Overall, Sally Beauty Holdings Inc should monitor its cash conversion cycle consistently to ensure efficient inventory management and timely cash collection, which are crucial for maintaining healthy working capital levels and sustainable operations.