The Wendy’s Co (WEN)

The analysis of The Wendy's Co liquidity ratios indicates fluctuations over the years. The current ratio, which measures the company's ability to cover short-term obligations with current assets, showed a declining trend from 2020 to 2021 but improved significantly in 2022 and continued to be strong in 2023 and 2024, with values of 2.73 and 1.85 respectively. This suggests an improvement in the company's short-term liquidity position.

The quick ratio, which provides a more stringent measure of liquidity by excluding inventory from current assets, followed a similar trend as the current ratio. It decreased from 2020 to 2021 but saw substantial improvement in 2022, continuing to be healthy in 2023 and 2024. The quick ratio values ranged from 0.58 in 2021 to 1.92 in 2022, indicating the company's enhanced ability to meet short-term obligations without relying on inventory.

The cash ratio, which focuses solely on cash and cash equivalents to cover current liabilities, also displayed the same trend as the quick and current ratios. The cash ratio improved significantly in 2022 compared to 2021, indicating a stronger ability to meet short-term obligations with available cash reserves. The values for the cash ratio ranged from 0.58 in 2021 to 1.92 in 2022, showcasing a robust liquidity position in those years.

Overall, the liquidity ratios for The Wendy's Co demonstrate an improved short-term financial position in recent years, with stronger current, quick, and cash ratios indicating the company's ability to meet its short-term obligations effectively and efficiently.

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Additional liquidity measure

The cash conversion cycle of The Wendy’s Co has shown a consistent trend over the past five years. Starting at 1.55 days on December 31, 2020, it increased gradually to 1.89 days by December 31, 2022, before slightly declining to 1.64 days by December 31, 2024. This indicates that the company has been efficient in managing its cash conversion cycle, which measures the time it takes for a company to convert its investments in inventory into cash flows from sales. The lower the number of days in the cash conversion cycle, the more efficient the company is in managing its working capital. Wendy's ability to maintain a relatively short cash conversion cycle suggests effective inventory management and a quick turnaround in converting sales into cash.