Sylvamo Corp (SLVM)

Sylvamo Corp's liquidity ratios, as reflected by the current ratio, quick ratio, and cash ratio, provide insight into the company's ability to meet its short-term obligations.

Starting with the current ratio, which indicates the company's ability to cover its current liabilities with current assets, Sylvamo Corp has maintained a relatively stable current ratio over the past four years, ranging from 1.46 in 2021 to 1.72 in 2023. The current ratio has generally been above 1, suggesting that the company has had sufficient current assets to cover its short-term liabilities for the most part.

Moving on to the quick ratio, which provides a more stringent measure of liquidity by excluding inventory from current assets, Sylvamo Corp's quick ratio has fluctuated over the period under review. The company's quick ratio ranged from 1.01 in 2021 to 1.21 in 2022, with the latest ratio standing at 1.05 in 2023. While the quick ratio has generally been above 1, indicating that Sylvamo Corp can meet its short-term obligations without relying on inventory, there has been some variability in its liquidity position.

Lastly, examining the cash ratio, which measures the company's ability to cover its current liabilities with cash and cash equivalents, Sylvamo Corp's cash ratio has also displayed fluctuations. The company's cash ratio ranged from 0.32 in 2020 to 0.59 in 2022, decreasing to 0.43 in 2023. A cash ratio below 1 suggests that Sylvamo Corp may not have enough cash on hand to meet its short-term liabilities outright, but it has other current assets that can be used for liquidity.

In summary, Sylvamo Corp has shown a stable current ratio above 1, indicating general liquidity to cover its short-term obligations. However, the fluctuations in the quick ratio and cash ratio suggest some variability in the company's ability to meet its short-term obligations using more stringent liquidity measures such as excluding inventory or focusing solely on cash. Further analysis and monitoring of these ratios will be essential to assess Sylvamo Corp's ongoing liquidity position accurately.

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Additional liquidity measure

The cash conversion cycle of Sylvamo Corp, which represents the time it takes for the company to convert its investments in inventory and other resources into cash, has fluctuated over the past four years.

In 2023, the cash conversion cycle was 39.77 days, indicating that Sylvamo Corp took approximately 39.77 days to convert its resources into cash. This was higher compared to the previous year, suggesting a potential inefficiency in managing inventory, receivables, and payables.

In 2022, the cash conversion cycle improved to 32.87 days, showing a positive trend in the company's ability to optimize its working capital management and liquidity. This may indicate better inventory turnover and collection of receivables, leading to a shorter cycle.

In 2021, the cash conversion cycle was 34.71 days, slightly higher than the 2022 figure but still better than 2020. This could imply some challenges in managing cash flows efficiently, possibly related to inventory management or collection of receivables.

In 2020, Sylvamo Corp had a significantly longer cash conversion cycle of 85.41 days, which suggests slower cash turnover and potential difficulties in managing working capital effectively. This extended cycle may have been due to delays in converting inventory into sales and collecting receivables promptly.

Overall, the fluctuation in Sylvamo Corp's cash conversion cycle over the years indicates varying levels of efficiency in managing working capital and liquidity. The company should continue to focus on optimizing its inventory turnover, accounts receivable collection, and accounts payable management to enhance its cash conversion cycle and improve overall financial performance.