Ultra Clean Holdings Inc (UCTT)

Ultra Clean Holdings Inc has shown consistent strength in liquidity over the past five years based on its liquidity ratios.

1. Current Ratio:
The current ratio measures the company's ability to cover its short-term obligations with its current assets. Ultra Clean Holdings Inc has seen a generally increasing trend in its current ratio over the years, indicating improving liquidity. As of December 31, 2023, the current ratio stood at 2.88, suggesting that the company had $2.88 in current assets for every $1 in current liabilities. This indicates that Ultra Clean Holdings Inc has a strong ability to meet its short-term debt obligations.

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. Ultra Clean Holdings Inc has maintained a relatively stable quick ratio over the years, with a value of 1.57 as of December 31, 2023. This implies that the company had $1.57 in liquid assets available to cover each dollar of current liabilities, indicating a strong ability to meet short-term obligations without relying on inventory sales.

3. Cash Ratio:
The cash ratio is the most conservative measure of liquidity, focusing solely on the company's cash and cash equivalents to cover its current liabilities. Ultra Clean Holdings Inc has shown fluctuations in its cash ratio over the years, with the ratio standing at 0.99 as of December 31, 2023. This implies that the company had $0.99 in cash and cash equivalents for every dollar of current liabilities, indicating a moderate ability to meet short-term obligations solely from its available cash reserves.

Overall, Ultra Clean Holdings Inc's liquidity ratios suggest a strong financial position with the ability to meet its short-term obligations effectively. The company's increasing current ratio, stable quick ratio, and moderate cash ratio indicate prudent management of liquidity and working capital over the years.

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Additional liquidity measure

Ultra Clean Holdings Inc's cash conversion cycle has experienced fluctuations over the past five years. The company's cash conversion cycle, which reflects the time it takes for a company to convert its investments in inventory and accounts receivable into cash inflows from sales, increased steadily from 55.08 days in 2019 to 83.53 days in 2023.

The rising trend indicates that the company may be taking longer to convert its investments in inventory and accounts receivable into cash. This could potentially signify inefficiencies in managing inventory levels, collecting accounts receivable, or possibly extending payment terms to suppliers.

It is essential for Ultra Clean Holdings Inc to closely monitor and manage its cash conversion cycle to ensure optimal working capital management. By improving inventory turnover, speeding up collections from customers, and negotiating favorable payment terms with suppliers, the company may be able to shorten its cash conversion cycle and free up cash for other operational or investment needs.