Timken Company (TKR)

The liquidity ratios of Timken Co. as of December 31 for the past five years indicate the company's ability to meet its short-term obligations.

The current ratio, which measures the company's ability to pay off its current liabilities with its current assets, has shown a declining trend from 2.54 in 2019 to 1.79 in 2023. A current ratio above 1 indicates the company has enough current assets to cover its current liabilities, although a ratio that is too high can suggest an inefficient use of resources.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Timken Co.'s quick ratio has also exhibited a decreasing trend, declining from 1.39 in 2019 to 0.96 in 2023. A quick ratio below 1 may indicate potential difficulty in meeting short-term obligations without relying on selling inventory.

The cash ratio, which is the most conservative measure of liquidity, focuses solely on the company's ability to cover its current liabilities with its cash and cash equivalents. Timken Co.'s cash ratio has fluctuated over the years but has generally decreased from 0.55 in 2020 to 0.40 in 2023. A cash ratio below 1 suggests that not all current liabilities can be covered solely with cash on hand.

Overall, the declining trend in all three liquidity ratios over the past five years for Timken Co. may raise concerns about the company's ability to meet its short-term financial obligations. It is crucial for the company to carefully manage its liquidity position to ensure it can meet its operational needs and uphold its financial stability.

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Additional liquidity measure

The cash conversion cycle of Timken Co. has shown fluctuations over the past five years. In 2023, the cash conversion cycle increased to 158.97 days compared to 154.79 days in 2022. This indicates that it took the company longer to convert its investments in inventory and accounts receivable into cash during the most recent year.

In 2021, the cash conversion cycle was at its lowest point at 138.35 days, showing efficiency in managing its working capital and converting assets into cash quickly. However, there was a slight increase in 2022 followed by a more significant increase in 2023, which may raise concerns about liquidity management.

Comparing the latest data to 2019, the cash conversion cycle has experienced a gradual increase over the years, indicating a potential slowdown in the company's ability to efficiently convert its resources into cash. It is essential for Timken Co. to closely monitor and manage its inventory levels, accounts receivable collection, and payment cycles to optimize its cash conversion cycle and maintain healthy liquidity levels.