Vestis Corporation (VSTS)

The liquidity ratios of Vestis Corporation indicate the company's ability to meet its short-term financial obligations effectively.

The current ratio has been consistently improving over the past three years, standing at 2.58 in September 2023, compared to 2.45 in 2022 and 2.43 in 2021. This suggests that Vestis has ample current assets to cover its current liabilities, providing a good margin of safety.

In contrast, the quick ratio, also known as the acid-test ratio, indicates the company's ability to meet its short-term obligations without relying on inventory. The quick ratio has fluctuated over the years, showing a significant increase to 0.11 in 2021, then dropping to 0.06 in 2022, and further declining to 0.09 in 2023. A quick ratio below 1.0 may raise concerns about Vestis' ability to cover its immediate liabilities with its most liquid assets.

The cash ratio, which specifically measures a company's ability to cover its short-term liabilities with cash and cash equivalents, mirrors the trend observed in the quick ratio. Vestis improved its cash ratio in 2021 to 0.11 but saw a decline to 0.06 in 2022 and maintained the same ratio in 2023.

Overall, while Vestis Corporation's current ratio indicates a healthy liquidity position, the declining trend in quick and cash ratios raises concerns about the company's ability to quickly meet its short-term obligations without relying on inventory or other current assets. Management may need to monitor and optimize its working capital management to ensure sufficient liquidity in the future.

---

Additional liquidity measure

The cash conversion cycle for Vestis Corporation has shown a decreasing trend over the past three years, dropping from 115.17 days in 2021 to 106.29 days in 2023. This indicates an improvement in the company's efficiency in managing its cash flows and working capital.

A lower cash conversion cycle suggests that Vestis Corporation is able to convert its investments in inventory into cash more quickly, thereby reducing the amount of time it takes to generate cash from its operational activities.

The significant decrease in the cash conversion cycle from 2021 to 2023 indicates that the company has been able to streamline its operations, manage its inventory levels more effectively, and collect receivables more efficiently.

Overall, the declining trend in the cash conversion cycle reflects positively on Vestis Corporation's liquidity management and operational efficiency, which bodes well for its financial health and ability to meet its short-term obligations.