STERIS plc (STE)

Based on the provided data for STERIS plc, we can analyze the liquidity ratios as follows:

1. Current Ratio:
- The current ratio measures the company's ability to cover its short-term obligations with its current assets. A ratio above 1 indicates that the company can meet its current liabilities.
- STERIS plc's current ratio has been consistently above 1, indicating a healthy liquidity position.
- The current ratio fluctuated between 1.75 and 3.08 during the period under review, with an average of approximately 2.26.
- The company maintained a current ratio above 2 for most of the period, indicating strong short-term liquidity.

2. Quick Ratio:
- The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventories from current assets.
- STERIS plc's quick ratio ranged between 1.12 and 1.87, with an average of around 1.34, which is slightly lower than the current ratio.
- The quick ratio generally followed the same trend as the current ratio, staying above 1 for most periods, indicating the company's ability to cover its short-term obligations without relying on inventory sales.

3. Cash Ratio:
- The cash ratio is the most conservative measure of liquidity, focusing solely on the company's ability to cover current liabilities with cash and cash equivalents.
- STERIS plc's cash ratio varied between 0.17 and 0.72, with an average of approximately 0.34.
- The cash ratio remained relatively stable over the period, with the company holding sufficient cash to meet its short-term obligations, albeit at a lower level compared to the current and quick ratios.

Overall, the analysis of STERIS plc's liquidity ratios indicates that the company maintains a strong liquidity position, with current assets generally exceeding current liabilities. The current, quick, and cash ratios show a consistent ability to cover short-term obligations, providing a favorable indication of the company's financial health in terms of liquidity.

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Additional liquidity measure

The cash conversion cycle of STERIS plc has fluctuated over the past few years. It measures the time it takes for the company to convert its investments in inventory and other resources into cash flows from sales. A lower cash conversion cycle typically indicates that the company is managing its working capital effectively.

In June 2020, the cash conversion cycle was 91.89 days, which increased to 148.07 days by June 2021, reflecting a significant deterioration in the company's ability to convert its resources into cash. Subsequently, there was some improvement as the cycle decreased to 112.01 days by June 2022 and then increased slightly to 135.64 days by December 31, 2023.

The trend continued with a lower cash conversion cycle of 106.54 days by March 31, 2025, indicating potential efficiency in managing working capital. Overall, it is crucial for STERIS plc to focus on optimizing its cash conversion cycle to ensure effective working capital management and sustainable financial performance.