Solventum Corp. (SOLV)

Based on the provided data for Solventum Corp., we can analyze the liquidity ratios over the past three years.

The current ratio measures the company's ability to cover its short-term liabilities with its current assets. Solventum Corp.'s current ratio has been relatively stable over the past three years, ranging from 1.56 in 2021 to 1.70 in 2022, and then decreasing slightly to 1.65 in 2023. This indicates that the company has enough current assets to cover its current liabilities, with 1.65 times more assets than liabilities in 2023.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Solventum Corp.'s quick ratio has shown significant fluctuation over the past three years, with a notable improvement from 0.06 in 2021 to 0.05 in 2022, followed by a substantial increase to 0.34 in 2023. This improvement suggests that the company may have reduced its reliance on inventory to meet its short-term obligations.

The cash ratio, which is the most conservative liquidity ratio, measures the company's ability to cover its current liabilities with its cash and cash equivalents alone. Solventum Corp.'s cash ratio has mirrored the trend of the quick ratio, improving from 0.06 in 2021 to 0.05 in 2022 and then jumping to 0.34 in 2023. This significant increase indicates that the company has substantially increased its cash reserves relative to its current liabilities in 2023.

In summary, Solventum Corp.'s liquidity ratios have shown varying trends over the past three years, with improvements in the quick ratio and cash ratio in 2023, suggesting a stronger ability to meet short-term obligations. However, it is essential to monitor these ratios consistently to ensure the company's continued liquidity and financial health.

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Additional liquidity measure

The cash conversion cycle measures the time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. A shorter cash conversion cycle indicates better efficiency in managing working capital and generating cash.

In the case of Solventum Corp., we observe a declining trend in the cash conversion cycle over the past three years from 92.76 days in 2022 to 86.17 days in 2023. This improvement suggests that the company is becoming more efficient in managing its working capital and converting investments into cash.

The significant reduction in the cash conversion cycle from 2020, where it was 0.00 days, to the subsequent years, indicates a change in the company's operating cycle. The sudden drop in 2020 could be due to various factors such as changes in inventory management, accounts receivable collection policies, or payment terms with suppliers.

In conclusion, Solventum Corp. has shown a positive trend in its cash conversion cycle, indicating improved efficiency in working capital management and cash flow generation over the years. Continued monitoring of this metric will be essential to ensure sustained operational and financial performance.