Tetra Tech Inc (TTEK)

The liquidity ratios for Tetra Tech Inc have exhibited a declining trend over the last five years.

The current ratio measures the company's ability to meet short-term obligations with its current assets. Tetra Tech's current ratio decreased from 1.40 in 2019 to 1.12 in 2023. This decline suggests a weakening ability to cover short-term liabilities with current assets, possibly indicating increased financial risk or inefficient management of working capital.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Tetra Tech's quick ratio decreased from 1.17 in 2019 to 0.95 in 2023, indicating a lower ability to meet short-term obligations without relying on inventory liquidation. This may suggest potential difficulty in quickly converting assets into cash to cover immediate liabilities.

The cash ratio specifically focuses on the company's ability to cover short-term obligations with cash and cash equivalents. Tetra Tech's cash ratio fluctuated over the years but showed a downward trend overall, from 0.16 in 2019 to 0.14 in 2023. This indicates a decreasing ability to settle short-term liabilities solely with cash on hand, which may raise concerns about the company's cash liquidity position.

Overall, the declining trend in Tetra Tech Inc's liquidity ratios, including the current ratio, quick ratio, and cash ratio, suggests a potential deterioration in the company's short-term financial health and liquidity position. Further analysis and monitoring of working capital management and cash flow generation may be necessary to address these liquidity concerns.

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Additional liquidity measure

The cash conversion cycle for Tetra Tech Inc has shown significant fluctuations over the past five years. In 2019, the company had a positive cash conversion cycle of 63.98 days, signifying that it took nearly two months for Tetra Tech to convert its investments in inventory and accounts receivable into cash flow from sales. However, since then, the trend has reversed, and the company has been able to manage its working capital more efficiently.

By 2020, Tetra Tech had effectively reduced its cash conversion cycle to -789.95 days, indicating that the company was able to convert its investments into cash at a much faster rate. This negative value suggests that Tetra Tech was able to quickly turn its inventory and receivables into cash, potentially through faster sales or efficient collection of accounts receivable.

In 2021 and 2022, Tetra Tech continued to show improvements in its cash conversion cycle, achieving values of -1,281.77 days and -1,285.95 days, respectively. These negative values demonstrate the company's ability to manage its working capital effectively, with the company converting its investments into cash even faster than in the previous years.

By the end of 2023, Tetra Tech further shortened its cash conversion cycle to -653.41 days, indicating a continued emphasis on efficient working capital management. This rapid conversion of investments into cash reflects Tetra Tech's success in optimizing its operations and liquidity management.

Overall, Tetra Tech's consistent improvements in its cash conversion cycle over the five-year period suggest strong working capital management and efficient use of resources, ultimately contributing to the company's financial health and operational efficiency.