Universal Corporation (UVV)

The liquidity ratios of Universal Corporation over the past five years show some fluctuations in the company's ability to meet its short-term obligations.

1. Current ratio: The current ratio measures Universal Corporation's ability to cover its short-term liabilities with its current assets. The current ratio has decreased over the years from 5.53 in 2020 to 2.96 in 2024. A current ratio above 1 indicates that the company has more current assets than current liabilities.

2. Quick ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity as it excludes inventory from current assets. Universal Corporation's quick ratio has shown variability, decreasing from 2.22 in 2021 to 0.82 in 2024. A quick ratio above 1 indicates a company can meet its short-term obligations without relying on selling inventory.

3. Cash ratio: The cash ratio specifically focuses on the company's ability to cover its short-term liabilities with cash and cash equivalents. Universal Corporation's cash ratio has shown a significant decline over the years, dropping from 0.96 in 2021 to 0.08 in 2024. A cash ratio of less than 1 suggests the company may have difficulty meeting its short-term obligations with cash alone.

Overall, the trends in Universal Corporation's liquidity ratios indicate fluctuations in its ability to meet short-term obligations. The decreasing trend in the current ratio, quick ratio, and cash ratio may raise concerns about the company's liquidity position and ability to manage short-term financial commitments effectively. Further analysis and monitoring of these ratios are recommended to assess Universal Corporation's liquidity risk and financial health accurately.

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Additional liquidity measure

The cash conversion cycle for Universal Corporation has exhibited some fluctuations over the past five years. In the most recent period as of March 31, 2024, the company's cash conversion cycle stood at 63.07 days, representing the number of days it takes for Universal Corporation to convert its investments in inventory into cash receipts from customers. Comparing this figure to previous years, we observe that the cash conversion cycle has been on an upward trend since 2022, indicating a potential slowdown in the company's cash conversion efficiency.

In March 2023, the cash conversion cycle was 58.86 days, slightly lower than the 2024 figure. However, the cycle increased to 69.33 days in March 2022, which was notably higher than both the preceding and succeeding years. This peak in 2022 suggests that Universal Corporation faced challenges in efficiently managing its inventory, accounts receivable, and accounts payable during that period.

On the positive side, the cash conversion cycle decreased to 62.97 days in March 2021, showing an improvement in the company's working capital management compared to the previous year. The most favorable performance in recent years was in March 2020, with a cash conversion cycle of 54.47 days, indicating that Universal Corporation was able to optimize its cash flow by efficiently managing its operating cycle components.

Overall, the analysis of Universal Corporation's cash conversion cycle reveals fluctuations in the efficiency of the company's working capital management over the past five years. The increasing trend in recent periods suggests a potential need for the company to focus on enhancing its inventory turnover, collection of receivables, and management of payables to shorten its cash conversion cycle and improve overall liquidity and financial performance.