Trex Company Inc (TREX)

Trex Company Inc's liquidity ratios depict the firm's ability to meet its short-term obligations using its current assets. The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown fluctuations over the years. From 2020 to 2021, there was a notable improvement, with the ratio increasing from 3.03 to 4.52, indicating a strengthened liquidity position. However, in 2022, the current ratio dropped significantly to 0.99, depicting a potential liquidity challenge. The ratio recovered in 2023 to 1.89 but decreased again in 2024 to 0.93, suggesting inconsistency in managing short-term obligations.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, also experienced fluctuations. It improved from 2.22 in 2020 to 3.30 in 2021, reflecting enhanced ability to cover immediate liabilities without relying on inventory. However, in 2022, the quick ratio declined to 0.46, indicating a potential liquidity strain. Although it improved slightly in 2023 and 2024, the ratios of 0.58 and 0.26 respectively still suggest a lower ability to meet short-term obligations without relying on inventory.

The cash ratio, which measures the company's ability to cover its current liabilities with cash and cash equivalents, shows a similar trend of fluctuation. The ratio increased from 1.14 in 2020 to 1.59 in 2021, indicating a stronger cash position. However, in 2022, the cash ratio dropped significantly to 0.04, highlighting a potential cash shortage. Moreover, in 2023 and 2024, the cash ratio decreased further to 0.02 and 0.00 respectively, suggesting a diminished ability to cover immediate liabilities with cash reserves alone.

In summary, Trex Company Inc's liquidity ratios have displayed fluctuations over the years, indicating varying levels of liquidity and potential challenges in meeting short-term obligations. It is crucial for the company to closely monitor and manage its liquidity position to ensure financial stability and sustainability.

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Additional liquidity measure

The cash conversion cycle of Trex Company Inc has experienced fluctuations over the years, reflecting changes in the efficiency of its working capital management. In 2020, the company's cash conversion cycle was 64.11 days, indicating a relatively efficient conversion of inventory into cash. However, by the end of 2021, the cycle increased to 69.51 days, suggesting a slight delay in the conversion process.

In 2022, the cash conversion cycle significantly extended to 93.33 days, indicating a potential issue with managing the company's working capital effectively. The following year, the cycle decreased to 54.01 days, showing improvement in converting inventory and receivables into cash more efficiently.

By the end of 2024, the cash conversion cycle rose again to 91.05 days, signaling a potential return to inefficiencies in working capital management. Overall, the fluctuating trend in the cash conversion cycle suggests that Trex Company Inc may need to focus on optimizing its inventory and receivables management to enhance cash flow and operational efficiency.