Valaris Ltd (VAL)

Based on the provided data, let's analyze Valaris Ltd's liquidity ratios:

1. Current Ratio:
- The current ratio measures the company's ability to cover its short-term liabilities with its short-term assets.
- Valaris Ltd's current ratio has been relatively stable between 2020 and 2022, ranging from 2.67 to 2.86, indicating a healthy liquidity position during these years.
- However, there is a noticeable decline in the current ratio in 2023 and 2024 to 1.71 and 1.59, respectively, which may suggest potential liquidity challenges in covering short-term obligations with current assets.

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.
- Valaris Ltd's quick ratio shows an improvement from 1.04 in 2020 to 1.44 in 2021 and 2022, indicating an enhanced ability to meet short-term liabilities without relying on inventory.
- However, the quick ratio decreases significantly to 0.83 in 2023 and further to 0.54 in 2024, raising concerns about the company's immediate liquidity position without inventory considered in the calculation.

3. Cash Ratio:
- The cash ratio is the most conservative liquidity ratio, focusing solely on the ability to cover short-term liabilities with cash and cash equivalents.
- Valaris Ltd's cash ratio follows a similar trend to the quick ratio, improving from 1.04 in 2020 to 1.44 in 2021 and 2022 before declining to 0.83 in 2023 and 0.54 in 2024.
- The decreasing trend in the cash ratio highlights the potential challenges Valaris Ltd may face in meeting its short-term obligations with readily available cash resources.

In summary, while Valaris Ltd maintained a healthy liquidity position in the earlier years, there is a concerning deterioration in liquidity ratios in 2023 and 2024, particularly in the quick and cash ratios. This trend suggests a need for the company to closely monitor its liquidity management and ensure it has adequate resources to meet short-term financial commitments.

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Additional liquidity measure

The cash conversion cycle of Valaris Ltd has shown fluctuations over the years. In December 2020, the company had a cash conversion cycle of 50.71 days, indicating that it took nearly 51 days for Valaris to convert its investments in inventory and other resources back into cash.

By December 2024, however, Valaris had significantly improved its cash conversion cycle, reducing it to 0 days. This implies that the company was able to manage its working capital efficiently, converting investments into cash almost immediately.

Overall, the trend shows that Valaris has made substantial progress in optimizing its cash conversion cycle, achieving better liquidity and potentially enhancing its financial performance. The company's ability to streamline its operations and manage its working capital effectively is reflected in the decreasing trend of the cash conversion cycle from 2020 to 2024.