Victoria's Secret & Co (VSCO)

The liquidity ratios of Victoria's Secret & Co indicate the company's ability to meet its short-term obligations and manage its cash effectively.

The current ratio, which measures the company's ability to cover its short-term liabilities with its current assets, has shown some fluctuations over the periods analyzed. The ratio has decreased from 1.27 in October 2022 to 0.95 in February 2024, indicating a decline in the company's short-term liquidity position. However, it has generally been above 1, suggesting that Victoria's Secret & Co has had sufficient current assets to cover its short-term obligations, although the decreasing trend is worth monitoring.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, has generally been low for Victoria's Secret & Co, indicating potential difficulties in meeting its short-term obligations without relying on inventory sales. The ratio has fluctuated, but it has consistently been below 1, with the lowest being 0.19 in multiple periods. This may suggest a potential risk in the company's ability to meet immediate payment obligations without relying on the sale of inventory.

The cash ratio, which is the most conservative liquidity ratio as it only considers cash and cash equivalents to cover current liabilities, has also varied over the periods examined. Victoria's Secret & Co has shown an inconsistent ability to cover its short-term obligations with cash alone, with ratios as low as 0.09 and as high as 0.29. A higher cash ratio is generally preferred as it indicates a stronger ability to meet short-term obligations without requiring the conversion of other assets into cash.

In conclusion, while the current ratio of Victoria's Secret & Co suggests that the company can meet its short-term obligations with its current assets, the low quick ratio and varying cash ratio indicate potential liquidity challenges, especially in meeting short-term obligations without relying on inventory or non-cash assets. Monitoring these ratios closely is crucial to ensure the company's liquidity remains stable and sustainable.

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Additional liquidity measure

The cash conversion cycle of Victoria's Secret & Co has shown fluctuations over the past few quarters. In the most recent period ending on February 3, 2024, the company had a cash conversion cycle of 37.97 days, which indicates a significant improvement compared to the previous quarter. This suggests that the company was able to efficiently convert its inventory into sales and collect cash from customers in a shorter period.

However, looking back at the trend, we can see that the cash conversion cycle was much higher in the preceding quarters, reaching a peak of 75.48 days in October 28, 2023. This indicates that Victoria's Secret & Co took longer to convert its resources (inventory) into cash during that period, possibly due to inventory management issues or slower collection from customers.

Overall, the company seems to have made improvements in managing its cash conversion cycle in the latest quarter, but it is important to monitor this metric consistently to ensure sustainable efficiency in working capital management.