SolarEdge Technologies Inc (SEDG)

Solaredge Technologies Inc has exhibited strong liquidity over the past five years as indicated by its liquidity ratios.

1. Current Ratio: This ratio measures the company's ability to cover its short-term obligations with its short-term assets. Solaredge's current ratio has been consistently above 1, indicating that it has more than enough current assets to cover its current liabilities. The trend shows an improvement from 2019 to 2020, peaking in 2020 at 3.94 before stabilizing around the 3.26 range in recent years. This implies that the company has maintained a healthy level of current assets relative to its current liabilities, which is generally positive for its short-term financial health.

2. Quick Ratio: The quick ratio, or acid-test ratio, provides a more stringent measure of liquidity as it excludes inventory from current assets. Solaredge's quick ratio has also been strong over the years, consistently above 1, indicating the company has an ample amount of highly liquid assets to cover its short-term liabilities without relying on selling inventory. The ratio fell from 3.18 in 2020 to around 2.08 in 2023, indicating a slight decrease in the company's ability to cover its short-term liabilities with its most liquid assets. However, the quick ratio remains at healthy levels overall.

3. Cash Ratio: The cash ratio measures a company's ability to cover its short-term liabilities with its cash and cash equivalents alone. Solaredge's cash ratio has generally increased over the years, reflecting a strengthening ability to cover short-term obligations using only cash resources. The ratio increased notably from 2019 to 2020, reaching a high of 2.54 in 2020, before slightly declining to 1.21 in 2023. Despite the slight decrease, the cash ratio remains above 1, indicating that Solaredge has sufficient cash to cover its short-term liabilities.

In conclusion, Solaredge Technologies Inc has maintained a robust liquidity position over the years, with current, quick, and cash ratios consistently above industry norms. This suggests that the company is well-equipped to meet its short-term obligations and has a solid financial foundation to support its operational activities.

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See also:

SolarEdge Technologies Inc Liquidity Ratios

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Additional liquidity measure

Solaredge Technologies Inc's cash conversion cycle has shown an increasing trend over the years, indicating a potential worsening in the efficiency of its working capital management. The company took 327.57 days on average to convert its investments in inventory and accounts receivable into cash in 2023, compared to 241.02 days in 2022, 201.99 days in 2021, 190.19 days in 2020, and 163.75 days in 2019.

The prolonged cash conversion cycle may suggest issues with inventory management or delays in collecting receivables, which can tie up cash flow and limit the company's ability to invest in growth opportunities or meet its obligations in a timely manner. Solaredge Technologies Inc may need to focus on streamlining its operations to reduce the time it takes to convert its working capital into cash, thereby improving its overall liquidity position.