SPS Commerce Inc (SPSC)

Based on the provided data, we can observe the trends in the liquidity ratios of SPS Commerce Inc over the five-year period:

1. Current Ratio:
- The current ratio measures the company's ability to cover its short-term liabilities with its short-term assets. SPS Commerce Inc has shown a generally healthy current ratio, ranging from 2.60 to 3.43 over the period.
- The company's current ratio peaked in 2021 at 3.43 indicating a strong ability to meet its short-term obligations, but then decreased slightly in the following years.

2. Quick Ratio:
- The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. SPS Commerce Inc has maintained a stable quick ratio between 2.00 and 2.84 throughout the period.
- While the quick ratio is slightly lower than the current ratio, it still indicates a strong ability to cover short-term liabilities without relying on selling inventory.

3. Cash Ratio:
- The cash ratio is the most stringent liquidity metric as it measures the company's ability to cover its short-term obligations with cash and cash equivalents only. SPS Commerce Inc's cash ratio has ranged from 1.64 to 2.50 over the period.
- The cash ratio shows a decreasing trend over the years, indicating a slight reduction in the company's capability to cover short-term obligations with cash alone.

In summary, SPS Commerce Inc has maintained healthy liquidity positions based on the current, quick, and cash ratios. The current and quick ratios suggest that the company is able to meet its short-term obligations comfortably, while the cash ratio shows a slight decline in its ability to cover short-term obligations solely with cash and cash equivalents.

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Additional liquidity measure

The cash conversion cycle of SPS Commerce Inc has shown a gradual improvement over the years, indicating more efficient management of its working capital. From 156.74 days in December 2020, the cycle reduced to 133.08 days by December 2021, and further decreased to 130.88 days by December 2022. The most significant improvement was observed between December 2022 and December 2023, where the cycle decreased significantly to 16.97 days, reflecting a substantial enhancement in the company's liquidity position and operational efficiency. By December 2024, the cash conversion cycle further improved to just 14.92 days, highlighting SPS Commerce's effective management in converting investments in inventory and accounts receivable into cash. This consistent reduction in the cash conversion cycle demonstrates the company's ability to optimize cash flow and efficiently manage its working capital, which is a positive indicator of its financial health and operational efficiency.