Vistra Energy Corp (VST)

Liquidity ratios are essential indicators of a company's ability to meet its short-term financial obligations. In the case of Vistra Corp, we will analyze its current ratio, quick ratio, and cash ratio over the past five years.

1. Current Ratio:
Vistra Corp's current ratio has shown fluctuation over the past five years, ranging from 0.90 in 2019 to 1.35 in 2021. The current ratio measures the company's ability to cover its short-term liabilities with its current assets. A ratio above 1 indicates that the company has more current assets than current liabilities, which is a positive sign. While Vistra Corp's current ratio has been above 1 in most years, it dipped to 0.90 in 2019, indicating a potential liquidity concern in that year.

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. Vistra Corp's quick ratio has generally been lower than its current ratio, ranging from 0.76 in 2019 to 1.24 in 2021. A quick ratio above 1 indicates that the company can cover its short-term obligations without relying on the sale of inventory. Vistra Corp's quick ratio has shown improvement over the years, reaching 1.24 in 2021.

3. Cash Ratio:
The cash ratio focuses specifically on a company's ability to cover its current liabilities with its cash and cash equivalents. Vistra Corp's cash ratio has also exhibited variability, from 0.47 in 2019 to 1.00 in 2021. A cash ratio of 1 means that the company can pay off all its current liabilities with just its cash on hand. Vistra Corp's cash ratio improved significantly in 2021, reaching 1.00, which indicates a strong ability to meet short-term obligations using cash reserves.

Overall, Vistra Corp's liquidity ratios show some volatility over the past five years, with improvements in certain years, especially in 2021. Monitoring these ratios helps assess the company's short-term financial health and ability to manage its working capital effectively.

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Additional liquidity measure

The cash conversion cycle of Vistra Corp has shown variability over the past five years. In 2023, the cash conversion cycle increased to 21.83 days from 20.86 days in 2022. This indicates that Vistra Corp took slightly longer to convert its investments in inventory and receivables into cash during 2023 compared to the previous year.

The notable increase in the cash conversion cycle in 2023 may suggest a potential slowdown in the company's ability to efficiently manage its working capital. It is important for Vistra Corp to closely monitor and manage its cash conversion cycle to ensure optimal liquidity and operating efficiency.

In comparison to 2021 and 2020, where the cash conversion cycle was significantly lower at 6.65 days and 15.05 days respectively, the increase in 2023 warrants further analysis to identify underlying factors impacting the company's cash conversion cycle.

Overall, the trend in Vistra Corp's cash conversion cycle highlights the importance of monitoring working capital management strategies to ensure effective utilization of resources and sustain healthy cash flow operations.