Trex Company Inc (TREX)

The liquidity ratios of TREX Co., Inc. provide insights into the company's ability to meet its short-term obligations using its current assets. Looking at the data over the past five years, we observe the following trends:

1. Current Ratio: The current ratio measures the company's ability to pay its short-term liabilities with its current assets. TREX Co., Inc.'s current ratio has fluctuated with a significant decrease in 2022 followed by a rebound in 2023. The ratio stood at 1.89 in 2023, indicating that the company had $1.89 in current assets for every $1 of current liabilities.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. TREX Co., Inc.'s quick ratio has generally been lower than the current ratio, indicating a lower level of liquidity when inventory is excluded. The company's quick ratio in 2023 was 0.72, suggesting that it had $0.72 in liquid assets (excluding inventory) to cover each $1 of current liabilities.

3. Cash Ratio: The cash ratio is the most conservative liquidity measure as it considers only cash and cash equivalents to cover current liabilities. TREX Co., Inc.'s cash ratio has also fluctuated, with a notable increase in 2023 to 0.16. This implies that the company had $0.16 in cash and equivalents for every $1 of current liabilities, showing an improvement in its cash liquidity position.

Overall, TREX Co., Inc.'s liquidity ratios have shown variability over the past five years, with improvements in 2023 compared to a dip in 2022. While the company seems to have a healthy level of current assets relative to its current liabilities, there is room for improvement in maintaining higher levels of liquid assets to ensure effective short-term debt management and liquidity. Continued monitoring and management of liquidity ratios will be essential for the company's financial health and stability.

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Additional liquidity measure

The cash conversion cycle measures the efficiency with which a company manages its working capital including accounts receivable, inventory, and accounts payable. TREX Co., Inc.'s cash conversion cycle has fluctuated over the past five years.

In 2023, the cash conversion cycle decreased significantly to 64.15 days compared to 103.40 days in 2022. This indicates that TREX Co., Inc. was able to convert its investments in inventory and accounts receivable into cash more efficiently in 2023.

However, when compared to 2021 where the cash conversion cycle was 75.39 days, there was still a slight improvement. Notably, in 2020 and 2019, the cycle was 68.21 days and 73.73 days respectively, showing variations in the company's ability to manage its working capital efficiently.

Overall, the lower the cash conversion cycle, the better, as it suggests that the company is able to generate cash quickly from its operations. TREX Co., Inc. should continue to focus on optimizing its working capital management to maintain a lower cash conversion cycle in the future.