Toll Brothers Inc (TOL)

The liquidity ratios of Toll Brothers Inc. provide insights into the company's ability to meet its short-term obligations and manage cash flow effectively.

1. Current Ratio:
The current ratio measures the company's ability to meet short-term liabilities with its short-term assets. Toll Brothers Inc.'s current ratio has fluctuated over the past five years, ranging from 2.63 to 3.45. The current ratio stood at 2.75 as of October 31, 2023, indicating that for every dollar of current liabilities, the company had $2.75 in current assets. Generally, a current ratio of 2 or higher is considered healthy, suggesting that Toll Brothers Inc. has a strong ability to cover its short-term obligations and capital needs.

2. Quick Ratio:
The quick ratio, also known as the acid-test ratio, provides a more stringent measure of a company's ability to cover short-term liabilities with its most liquid assets. Toll Brothers Inc.'s quick ratio has remained relatively stable over the past five years, hovering between 0.42 and 0.64. The quick ratio was 0.42 as of October 31, 2023, indicating that the company had $0.42 in liquid assets for every dollar of current liabilities. A quick ratio below 1 may raise concerns about the company's ability to meet its short-term obligations without relying on inventory sales.

3. Cash Ratio:
The cash ratio measures the proportion of a company's current liabilities that can be covered by its cash and cash equivalents alone. Toll Brothers Inc.'s cash ratio has also seen fluctuations over the past five years, ranging from 0.36 to 0.49. As of October 31, 2023, the cash ratio stood at 0.36, indicating that the company had $0.36 in cash and cash equivalents for every dollar of current liabilities. A cash ratio below 1 suggests that Toll Brothers Inc. may need to rely on sources other than cash to meet its short-term obligations.

Overall, the liquidity ratios of Toll Brothers Inc. reflect a healthy ability to cover short-term obligations and manage liquidity, as evidenced by the current ratio consistently above 2. However, the declining trend in the quick ratio and cash ratio over the years may warrant further examination of the company's working capital management and cash flow strategies.

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Additional liquidity measure

The cash conversion cycle (CCC) for Toll Brothers Inc. has varied over the past five years. In 2023, the CCC was 428.51 days, compared to 390.43 days in 2022 and 417.02 days in 2021. This indicates that the company took longer to convert its investments in inventory and accounts receivable into cash from sales in 2023 compared to the previous two years. However, it is worth noting that the CCC was notably higher in 2020 and 2019, at 504.42 days and 495.79 days, respectively.

Overall, the trend suggests that Toll Brothers Inc. has been experiencing fluctuations in the efficiency of its cash conversion cycle. A higher CCC may indicate that the company is taking longer to sell its inventory and collect outstanding receivables, which can tie up cash and affect liquidity. Conversely, a lower CCC may suggest improved efficiency in converting investments in inventory and receivables into cash. Further analysis is recommended to identify the factors contributing to these fluctuations and their potential impact on the company's working capital management and overall financial performance.