STERIS plc (STE)

The liquidity ratios of STERIS plc have shown varying trends over the past five years.

1. Current Ratio:
- The current ratio measures the company's ability to meet its short-term obligations with its current assets. STERIS plc's current ratio has been improving steadily from 2.43 in 2020 to 3.08 in 2024, indicating a stronger ability to cover short-term liabilities with current assets.

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. STERIS plc's quick ratio has remained relatively stable over the years, with a slight decrease from 1.82 in 2020 to 1.31 in 2024. This suggests that the company may be relying less on inventory to cover short-term obligations.

3. Cash Ratio:
- The cash ratio, the most conservative liquidity ratio, calculates the proportion of current liabilities that can be covered by cash and cash equivalents alone. STERIS plc's cash ratio has declined from 0.65 in 2020 to 0.23 in 2024, indicating a lower ability to cover short-term liabilities solely with cash.

Overall, STERIS plc's liquidity position appears strong, as indicated by the current and quick ratios. However, the decreasing trend in the cash ratio raises some concerns about the company's ability to meet short-term obligations using cash reserves alone. Management should continue to monitor liquidity levels and ensure sufficient cash flow to meet upcoming liabilities.

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Additional liquidity measure

The cash conversion cycle of STERIS plc has been gradually increasing over the past five years, indicating that the company is taking longer to convert its investments in inventory into cash receipts from its sales.

In the latest fiscal year ending March 31, 2024, the cash conversion cycle was 124.46 days, which was higher compared to the previous year's figure of 119.08 days. This suggests that there has been a deterioration in the efficiency of STERIS plc's working capital management.

Looking back to the data from March 31, 2020, we can see a clear trend of an expanding cash conversion cycle over time, with an increasing amount of days required for the company to turn its resources into cash. This trend might indicate potential issues in inventory management, accounts receivable collection, or payment of accounts payable.

The longer cash conversion cycle could mean that STERIS plc is facing challenges with inventory turnover, slow collection of receivables, or delayed payment of payables. This can tie up more capital in the operating cycle, impacting liquidity and overall financial health.

It would be advisable for STERIS plc to evaluate its working capital management processes, identify bottlenecks, and implement strategies to improve efficiency in order to shorten its cash conversion cycle and enhance cash flow management.