Targa Resources Inc (TRGP)

The liquidity ratios of Targa Resources Corp over the past five years illustrate a mixed picture of the company's ability to meet its short-term obligations.

The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown a declining trend from 0.89 in 2019 to 0.79 in 2023. This indicates that Targa Resources Corp may be facing challenges in maintaining sufficient current assets to meet its current liabilities.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Similar to the current ratio, the quick ratio has also decreased over the years, from 0.73 in 2019 to 0.66 in 2023. This suggests that the company's ability to meet its short-term obligations without relying on inventory has weakened.

The cash ratio, which specifically focuses on the ability to cover current liabilities with cash and cash equivalents, has fluctuated over the years, with a notable decrease from 0.27 in 2019 to 0.13 in 2023. This declining trend may raise concerns about Targa Resources Corp's liquidity position and its ability to settle immediate obligations using cash resources.

Overall, the liquidity ratios of Targa Resources Corp imply a potential strain on the company's short-term financial health, as indicated by the downward trends in current, quick, and cash ratios. This suggests a need for closer monitoring and proactive management of liquidity to ensure the company's ability to meet its financial obligations in a timely manner.

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Additional liquidity measure

The cash conversion cycle of Targa Resources Corp has shown significant fluctuations over the past five years. In 2019, the company had a high cash conversion cycle of 45.62 days, indicating a longer period between when it paid its suppliers and when it received cash from customers. However, the company improved its cash conversion cycle in the subsequent years, reaching -8.51 days in 2020, which implies that Targa Resources Corp was able to convert its inventory into cash more quickly than the time it took to pay its suppliers.

In 2021, the cash conversion cycle further improved to -4.52 days, suggesting even more efficient management of working capital. This trend continued in 2022, with a cash conversion cycle of 1.75 days, indicating an effective balance between accounts receivable, accounts payable, and inventory turnover.

However, in 2023, there was a noticeable reversal in the trend, with a negative cash conversion cycle of -7.71 days. While a negative cash conversion cycle might seem favorable at first glance, it could also indicate aggressive cash management policies that may not be sustainable in the long term.

Overall, Targa Resources Corp's cash conversion cycle has been volatile over the years, reflecting fluctuations in the company's operating efficiency and working capital management. Further analysis would be required to understand the reasons behind these fluctuations and their potential impact on the company's financial performance and liquidity position.