ScanSource Inc (SCSC)

An analysis of ScanSource Inc.'s liquidity ratios over the provided period reveals several notable trends and insights:

Current Ratio:
The company's current ratio exhibits a consistent upward trajectory from 1.49 on September 30, 2020, to 2.30 on December 31, 2023, indicating an improving ability to meet short-term obligations with current assets. This ratio has remained comfortably above the generally accepted minimum of 1.0 throughout the period, suggesting sound liquidity management. Post-December 2023, the ratio slightly declined to approximately 2.07 as of March 31, 2025, but still remains indicative of a robust liquidity position.

Quick Ratio:
The quick ratio, which measures immediate liquidity without relying on inventories, shows a gradual increase from 0.67 in September 2020 to over 1.16 by December 2023. This trend highlights an improving capacity to cover short-term liabilities with liquid assets excluding inventories. Notably, the quick ratio surpasses 1.0 from March 2022 onwards, reflecting greater liquidity flexibility. Slight fluctuations post-December 2023, with the ratio stabilizing around 1.12 by June 2025, indicate sustained short-term liquidity strength.

Cash Ratio:
The cash ratio remains relatively low across the entire period, reflecting that a small portion of the company's current liabilities are covered by cash and cash equivalents. From a low of 0.06 in September 2020, it gradually increased to approximately 0.25 in March 2024 but declined slightly afterward, settling around 0.18 by June 2025. The low cash ratio suggests reliance on other current assets to meet short-term liabilities but also indicates prudent cash management, with a modest increase in liquid cash holdings over time.

Overall Observations:
- The upward trend in both the current and quick ratios suggests an improving liquidity position, likely due to effective working capital management.
- The current ratio's consistent rise indicates an increased buffer of current assets relative to current liabilities.
- The quick ratio exceeding 1.0 from early 2022 implies that the company’s liquid assets (excluding inventories) are sufficient to cover its immediate obligations.
- The cash ratio's low levels throughout the period suggest cash and cash equivalents constitute a small but gradually improving portion of current resources dedicated to short-term liabilities.

This combination of ratios indicates that ScanSource Inc. maintains a stable and improving liquidity profile, with a strong capacity to meet short-term obligations without excessive reliance on cash, reflecting prudent liquidity management and operational efficiency.

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Additional liquidity measure

The analysis of ScanSource Inc.'s cash conversion cycle (CCC) over the period from September 2020 to June 2025 reveals significant fluctuations, highlighting trends and potential operational implications. Throughout this timeframe, the CCC has experienced both increases and decreases, reflecting changes in inventory management, receivables collection, and payables policies.

Initially, the CCC remained relatively stable around 41 days during September and December 2020, indicating efficient management of working capital with a rapid turnover of receivables and payables relative to inventory turnover. However, from March 2021 onward, there was a notable increase, peaking at approximately 87.56 days in June 2023. This upward trend suggests a slowdown in the overall cash conversion efficiency, potentially due to extended inventory periods, lengthened receivables collection cycles, or delayed payments to suppliers.

Post-June 2023, the CCC showed signs of contraction, decreasing to approximately 55.73 days in September 2024. This reduction may imply operational adjustments aimed at improving cash flow, such as optimized inventory levels, more aggressive receivables collection, or negotiation of more favorable payables terms. Nonetheless, the CCC remains elevated compared to the pre-2021 levels, indicating ongoing challenges or strategic decisions impacting working capital cycles.

Overall, the pattern indicates periods of heightened working capital requirements, especially during 2022 and early 2023, which could correlate with broader industry trends, supply chain disruptions, or internal operational shifts. The fluctuations denote that ScanSource's cash management strategies have evolved over time, impacting the efficiency of converting investments in inventory and receivables into cash. Continued monitoring of these trends will be essential to assess the company's ongoing operational effectiveness and liquidity position.