Advanced Drainage Systems Inc (WMS)

Based on the liquidity ratios of Advanced Drainage Systems Inc over the past five years, there are some notable trends to consider.

The current ratio, which measures the company's ability to cover its short-term liabilities with its short-term assets, has generally been healthy and improving over the period. The ratio increased from 2.80 in 2020 to 2.96 in 2024, indicating a strong ability to meet its short-term obligations.

The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. While the quick ratio has fluctuated over the years, it generally indicates that the company has enough liquid assets to cover its short-term liabilities. The ratio improved significantly from 2022 to 2024, reaching 1.85.

The cash ratio, which is the most conservative liquidity ratio as it only considers cash and cash equivalents to cover short-term liabilities, has also shown improvement over the years. The ratio increased from 0.73 in 2020 to 1.11 in 2024, indicating a stronger ability to pay off immediate obligations with cash on hand.

Overall, Advanced Drainage Systems Inc has demonstrated a strong liquidity position over the years, as evidenced by the increasing current ratio, quick ratio, and cash ratio. This indicates that the company has sufficient liquid assets to meet its short-term financial obligations and suggests a lower risk of financial distress related to liquidity issues.

---

Additional liquidity measure

The cash conversion cycle of Advanced Drainage Systems Inc has exhibited varying trends over the past five years.

In 2024, the cash conversion cycle improved significantly to 429.53 days from the previous year's 577.73 days, indicating that the company's management of its working capital and cash flow has become more efficient. This reduction in the cash conversion cycle suggests that the company is able to convert its investments in inventory and accounts receivable into cash more quickly.

In 2023 and 2022, the cash conversion cycle was considerably longer at 577.73 days and 616.73 days, respectively. These prolonged cycles might indicate challenges in managing inventory levels, collecting receivables, or paying suppliers efficiently. A lengthy cash conversion cycle could tie up working capital and potentially lead to liquidity issues.

The significant improvement in the cash conversion cycle in 2021 to 157.82 days from 206.53 days in 2020 reflects effective management of working capital during that period. It suggests that the company was able to streamline its operations and optimize its cash flow.

In summary, analyzing the trend of Advanced Drainage Systems Inc's cash conversion cycle reveals fluctuations over the years, with noticeable improvements in some years and challenges in others. Continued focus on managing inventory, receivables, and payables efficiently will be crucial for the company to sustain positive changes in its cash conversion cycle and overall financial performance.