SPS Commerce Inc (SPSC)

SPS Commerce Inc.'s liquidity ratios, including the current ratio, quick ratio, and cash ratio, provide insight into the company's ability to meet its short-term obligations.

The current ratio measures the company's ability to cover short-term liabilities with its current assets. From 2019 to 2023, SPS Commerce Inc.'s current ratio has shown a declining trend, decreasing from 4.29 in 2019 to 3.07 in 2023. This suggests that the company may be experiencing a slight decrease in its short-term liquidity, as the current ratio is still above 1, indicating the company's ability to cover its short-term liabilities with its current assets.

The quick ratio, which excludes inventory from current assets, remained consistent with the current ratio from 2019 to 2023, indicating that SPS Commerce Inc. has stable liquidity even when excluding inventory from its current assets.

The cash ratio, which is the most conservative measure of liquidity as it only considers cash and cash equivalents, has also shown a decreasing trend from 2019 to 2023. The cash ratio decreased from 3.82 in 2019 to 2.71 in 2023, indicating a slight decrease in the company's ability to cover its short-term liabilities with its highly liquid assets.

Overall, SPS Commerce Inc. has maintained relatively strong liquidity ratios over the years, with current and quick ratios above 1 and consistent with each other. However, the decreasing trend in the cash ratio may suggest a need for the company to continue monitoring and managing its cash position effectively to ensure it can meet its short-term obligations.

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Additional liquidity measure

The cash conversion cycle (CCC) of SPS Commerce Inc. has fluctuated over the past five years. In 2023, the company's CCC increased significantly to 16.97 days compared to 5.08 days in 2022. This indicates that the company took longer to convert its investments in inventory and receivables into cash in 2023. However, the CCC was lower in 2023 compared to 2019 and 2020, suggesting an improvement in the management of working capital.

Overall, the trend in the CCC for SPS Commerce Inc. shows some variability year-over-year, reflecting changes in the company's efficiency in managing its cash flow cycle. It is crucial for the company to closely monitor and manage its CCC to ensure optimal utilization of resources and maintain liquidity.