Sterling Construction Company Inc (STRL)

The analysis of Sterling Construction Company Inc.'s liquidity ratios over the period from December 31, 2020, to December 31, 2024, indicates an overall improvement in liquidity position.

The current ratio, which measures the company's ability to cover its short-term obligations with its current assets, shows a steady upward trend. It increased from 1.12 in 2020 to 1.24 in 2021, then to 1.34 in 2022, followed by a slight decrease to 1.25 in 2023, before rising again to 1.38 in 2024. This pattern suggests a generally strengthening ability to meet short-term liabilities with current assets, although the slight decline in 2023 indicates a minor temporary weakening before recovering.

The quick ratio, providing a more conservative view by excluding inventory from current assets, reflects similar positive movement. It decreased slightly from 1.07 in 2020 to 0.99 in 2021 but then increased significantly in subsequent years, reaching 1.27 in 2022, slightly decreasing to 1.22 in 2023, and ultimately rising to 1.35 in 2024. These changes imply that the company has enhanced its liquidity position relative to immediately available assets over time.

The cash ratio, which assesses the company's capacity to cover short-term obligations solely with cash and cash equivalents, exhibits a more pronounced improvement. It declines marginally from 0.21 in 2020 to 0.17 in 2021 but then shows a substantial increase to 0.41 in 2022, a notable rise to 0.70 in 2023, and further to 0.90 in 2024. This trend indicates a significant accumulation of liquid resources, enhancing the company's short-term liquidity buffer.

Overall, the progression of Sterling Construction Company Inc.'s liquidity ratios suggests a consistent strengthening of its short-term financial health. The upward trends in the current, quick, and cash ratios over the examined period reflect improved liquidity management and increased ability to meet short-term liabilities without reliance on external financing.

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Additional liquidity measure

The cash conversion cycle (CCC) of Sterling Construction Company Inc has exhibited notable fluctuations over the observed period from December 31, 2020, to December 31, 2024. Specifically, at the end of 2020, the CCC was approximately 49.84 days, indicating the duration it takes for the company to convert its investments in inventory and receivables into cash, net of its payables. This figure decreased significantly in 2021 to approximately 39.77 days, reflecting improvements in the company's working capital management or operational efficiencies.

However, the cycle then lengthened again in 2022 to nearly 49.98 days, approaching the level observed in 2020, which suggests a temporary reversal or challenges in managing receivables, inventory, or payables during that period. In subsequent years, the CCC demonstrated a consistent decrease, reaching approximately 33.76 days by the end of 2023. This downward trend indicates a strengthening in the company's liquidity position and operational efficiency, as it is able to convert its investments into cash more rapidly.

By the end of 2024, the CCC further improved to around 30.53 days, representing a cumulative reduction of nearly 19 days since the peak in 2022. This sustained reduction over two years signifies ongoing enhancements in cash flow management, such as faster collection of receivables, optimized inventory turnover, or extended payment terms with suppliers. Overall, the trend illustrates a strategic or operational progression towards more efficient working capital utilization, which could positively impact the company's liquidity, reduce financing needs, and enhance cash flow stability over time.