Advanced Drainage Systems Inc (WMS)

Advanced Drainage Systems Inc's liquidity ratios have shown a generally positive trend over the past five years. The current ratio has increased steadily from 2.33 in March 31, 2021, to 3.33 in March 31, 2025, indicating the company's ability to cover its short-term liabilities with its current assets has improved significantly.

Conversely, the quick ratio exhibited some volatility, with a notable decrease in March 31, 2022, followed by a gradual improvement in the following years. This ratio assesses the company's ability to pay off its current liabilities without relying on the sale of inventory. Despite the fluctuations, the quick ratio has generally shown a positive trajectory over the period under review.

The cash ratio, which measures the company’s ability to cover its current liabilities with cash and cash equivalents, experienced a significant improvement from 0.05 in March 31, 2022, to 1.16 in March 31, 2025. This indicates an increased liquidity position, with the company holding more cash reserves relative to its current liabilities, which is a positive sign for its financial health.

Overall, the trend in Advanced Drainage Systems Inc's liquidity ratios indicates a strengthening liquidity position and a higher level of ability to meet its short-term financial obligations, which is crucial for sustainable operations and financial stability.

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Additional liquidity measure

The cash conversion cycle of Advanced Drainage Systems Inc has shown some fluctuations over the years based on the provided data. As of March 31, 2021, the company had a cash conversion cycle of 80.15 days, which increased to 94.97 days by March 31, 2022. Subsequently, the cycle decreased to 83.94 days by March 31, 2023, before rising again to 85.39 days by March 31, 2024. Most recently, as of March 31, 2025, the cash conversion cycle stood at 93.96 days.

The cash conversion cycle measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. A longer cash conversion cycle may indicate that the company is taking longer to collect cash from its sales, manage its inventory efficiently, or pay its suppliers. Therefore, Advanced Drainage Systems Inc may want to examine the reasons behind the fluctuations in its cash conversion cycle and work on improving its working capital management to optimize its cash flow efficiency.