Shake Shack Inc (SHAK)
Liquidity ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Current ratio | 1.97 | 2.04 | 2.33 | 3.37 | 1.85 |
| Quick ratio | 1.71 | 1.79 | 2.11 | 3.15 | 1.68 |
| Cash ratio | 1.71 | 1.79 | 2.11 | 3.15 | 1.68 |
Shake Shack Inc's liquidity ratios have shown varying trends over the years. The current ratio, which measures the company's ability to cover short-term liabilities with its current assets, increased from 1.85 in 2020 to 3.37 in 2021, indicating a significant improvement in liquidity. However, the ratio decreased to 2.33 in 2022, 2.04 in 2023, and further to 1.97 in 2024, showing a decline in liquidity levels over the period.
The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, followed a similar trend. It increased from 1.68 in 2020 to 3.15 in 2021 but then decreased to 2.11 in 2022, 1.79 in 2023, and 1.71 in 2024.
The cash ratio, which specifically assesses the company's ability to cover current liabilities with cash and cash equivalents, mirrored the trends of the quick ratio. It increased from 1.68 in 2020 to 3.15 in 2021 before declining to 2.11 in 2022, 1.79 in 2023, and 1.71 in 2024.
Overall, while Shake Shack Inc initially demonstrated strong improvements in liquidity ratios, there was a subsequent decline in liquidity levels in later years. This could indicate potential challenges in managing short-term obligations with available liquid assets.
Additional liquidity measure
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 3.23 | 2.86 | 2.94 | 3.24 | 3.40 |
The cash conversion cycle of Shake Shack Inc has shown a gradual improvement over the years, decreasing from 3.40 days as of December 31, 2020, to 2.86 days as of December 31, 2023. This indicates that the company has been able to optimize its working capital management, allowing for a quicker conversion of inventory into cash.
However, there was a slight uptick in the cash conversion cycle to 3.23 days as of December 31, 2024. While this increase may raise some concerns, it is important to note that fluctuations in the cash conversion cycle can be influenced by various factors such as changes in sales, inventory levels, and payment terms.
Overall, Shake Shack Inc's ability to efficiently manage its cash conversion cycle is a positive sign of its operational effectiveness and liquidity management. The company should continue to monitor and fine-tune its working capital strategies to sustain this trend of improved cash conversion efficiency.