Valaris Ltd (VAL)

Based on the data provided for Valaris Ltd's liquidity ratios, there has been a consistent downward trend in the current ratio from 2.86 in 2021 to 1.71 in 2023. The current ratio measures the company's ability to meet its short-term obligations with its current assets. A current ratio above 1 indicates that the company has more current assets than current liabilities.

Similarly, the quick ratio has also shown a decline from 2.77 in 2021 to 1.69 in 2023. The quick ratio, which excludes inventory from current assets, provides a more stringent measure of liquidity as it considers only the most liquid assets available to cover short-term liabilities.

The cash ratio has decreased from 1.72 in 2021 to 1.07 in 2023. The cash ratio is the most conservative liquidity measure as it considers only cash and cash equivalents to cover current liabilities.

Overall, the decreasing trend in all three liquidity ratios indicates a potential deterioration in Valaris Ltd's ability to meet its short-term obligations using its current assets. It suggests that the company may be facing challenges in managing its short-term liquidity effectively, which could be a concern for its financial health. Further analysis and monitoring of the company's liquidity management are recommended to ensure its financial stability.

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Additional liquidity measure

The cash conversion cycle provides insight into how efficiently Valaris Ltd manages its working capital. A negative cash conversion cycle, such as the -0.65 days reported at the end of 2023, implies that the company is able to generate cash from sales before paying suppliers. This could indicate strong bargaining power with suppliers or quick turnaround of inventory.

In contrast, the significant positive cash conversion cycles of 34.61 days in 2022 and 54.71 days in 2021 suggest that Valaris Ltd took longer to convert its investments in inventory and accounts receivable into cash, potentially signaling challenges in managing working capital efficiently during those periods.

Overall, a negative cash conversion cycle, as observed in 2023, is typically preferred as it signifies efficient management of working capital and quicker cash generation from operating activities. However, trends should be monitored to ensure consistency and improvement over time.