Valvoline Inc (VVV)

The liquidity ratios of Valvoline Inc for the years 2019 to 2023 indicate the company's ability to meet its short-term obligations and manage its current assets effectively.

The current ratio, which measures the company's ability to pay off its short-term liabilities with its current assets, shows an improving trend from 2019 to 2023. The ratio has increased from 1.88 in 2019 to 2.59 in 2023, indicating that Valvoline Inc has strengthened its ability to cover its short-term liabilities with its current assets over the years. This is a positive sign, suggesting an improved liquidity position.

In contrast, the quick ratio, also known as the acid-test ratio, represents the company's ability to meet short-term obligations with its most liquid assets. The quick ratio displays significant volatility over the period, plummeting to 0.14 in 2022 and then substantially recovering to 2.49 in 2023. The substantial improvement in 2023 suggests that Valvoline Inc has managed to quickly convert its most liquid assets into cash to meet short-term liabilities, signifying enhanced liquidity management.

Similarly, the cash ratio, which is a more stringent measure of liquidity because it only considers the most liquid current assets, demonstrates an erratic trend over the period. The ratio has shown a notable improvement in 2023, reaching 2.27, after being as low as 0.07 in 2022. This suggests that the company has been successful in increasing its cash and equivalents relative to its current liabilities.

Overall, the liquidity analysis of Valvoline Inc based on these ratios indicates a general improvement in the company's ability to cover its short-term obligations with its current and most liquid assets. However, the volatility in the quick and cash ratios in the intermediate years warrants further investigation into the company's management of its current and liquid assets.

---

Additional liquidity measure

The cash conversion cycle (CCC) measures the time it takes for a company to convert its investment in inventory and other resources into cash flows from sales. It is a key indicator of a company's efficiency in managing working capital and generating cash. Valvoline Inc's CCC has shown fluctuations over the past five years.

In 2023, the CCC was 34.08 days, a slight increase from 2022, indicating a marginal decrease in the efficiency of the company's working capital management. However, compared to the figures from 2020 and 2019, there has been a significant improvement in the company's ability to convert its resources into cash.

In 2021, Valvoline Inc experienced a substantial decrease in its CCC to 107.79 days from 115.92 days in 2020, showing improved efficiency in managing its working capital. This improvement may have been a result of better inventory management, quicker receivables collection, or an increase in payables payment period.

The significant increase in CCC from 2019 to 2020, followed by the sharp decrease in 2021, is noteworthy. It suggests that the company may have improved its inventory management and collection of receivables after experiencing challenges in the previous year.

Overall, a decreasing trend in the cash conversion cycle indicates better working capital management and more efficient operations. The fluctuations in Valvoline Inc's CCC over the years reflect changes in the company's working capital management practices and highlight the importance of closely monitoring this metric for assessing operational efficiency.