Tempur Sealy International Inc (TPX)

The liquidity ratios of Tempur Sealy International Inc provide insights into the company's ability to meet its short-term financial obligations.

The current ratio, which measures the company's ability to pay off its short-term liabilities with its current assets, has remained relatively stable over the past five years, ranging from 0.99 to 1.22. While a current ratio above 1 indicates the company has more current assets than current liabilities, suggesting it is generally able to meet its short-term obligations, the slight fluctuations in this ratio warrant further investigation.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventories from current assets. Tempur Sealy International Inc's quick ratio has shown inconsistency over the years, varying between 0.65 and 0.83. A quick ratio below 1 indicates that the company may have difficulty meeting its short-term obligations without relying on inventory liquidation, which can pose risks during economic downturns.

The cash ratio, which reflects the company's ability to cover its short-term liabilities solely with cash and cash equivalents, has also fluctuated significantly over the past five years, ranging from 0.21 to 0.37. A lower cash ratio may indicate a reliance on other current assets to meet short-term obligations, while a higher cash ratio implies a stronger ability to cover liabilities with readily available cash reserves.

Overall, Tempur Sealy International Inc's liquidity ratios suggest a generally stable liquidity position, as indicated by the current ratio consistently above 1. However, the fluctuations in the quick ratio and cash ratio highlight the importance of carefully monitoring the company's ability to meet short-term obligations, manage working capital efficiently, and maintain adequate cash reserves for financial flexibility.

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Additional liquidity measure

The cash conversion cycle of Tempur Sealy International Inc has fluctuated over the past five years. In 2023, the cash conversion cycle was 54.39 days, showing a slight improvement from 2022 where it was 56.16 days. Compared to 2021 where the cycle was 35.25 days, the company took longer to convert its investments in inventory and accounts receivable into cash in 2023.

The increase in the cash conversion cycle from 2021 to 2022 may indicate potential issues with managing inventory levels or collecting receivables efficiently. Despite the slight improvement in 2023, the company should continue to focus on optimizing its working capital management to reduce the cycle duration and enhance cash flow efficiency.

Overall, monitoring and analyzing the cash conversion cycle helps in assessing the company's liquidity, operational efficiency, and ability to manage its working capital effectively over time.