Worthington Steel Inc (WS)

Analyzing the liquidity ratios of Worthington Steel Inc. over the specified periods reveals the following insights:

Current Ratio:
The current ratio indicates the company's ability to meet its short-term obligations with its short-term assets. From August 31, 2022, to August 31, 2023, the current ratio remained stable at approximately 1.93 and 2.05, suggesting a consistent and adequate liquidity position during this period. However, a decline is observed by May 31, 2024, with the ratio decreasing to 1.62, and it experienced a slight increase to 1.66 by May 31, 2025. Although still above 1, indicating that current assets slightly exceed current liabilities, the downward trend signals a diminishing liquidity cushion over time.

Quick Ratio (Acid-Test Ratio):
The quick ratio, measuring the company's ability to cover current liabilities with its most liquid assets, shows a marked improvement from August 31, 2022, to May 31, 2023. It rose sharply from 0.03 to 1.04, indicating a significant enhancement in liquid asset coverage, perhaps due to increased cash or receivables. Subsequently, it declined to 0.07 by August 31, 2023, suggesting a reduction in liquid assets relative to current liabilities. Nonetheless, the ratio improved again to 0.84 by May 31, 2024 and maintained that level through May 31, 2025. While still below 1 in most periods, the ratio's upward trend from August 2023 onward reflects an improving liquidity position in terms of quick assets.

Cash Ratio:
The cash ratio, reflecting the company's ability to settle current liabilities using only cash and cash equivalents, displays a relatively conservative liquidity stance. From August 31, 2022, through August 31, 2023, the ratio remained stable at 0.03 to 0.07, indicating minimal cash reserves relative to current liabilities. A notable increase occurred by May 31, 2025, where the ratio reached 0.15, signaling an enhancement in cash holdings and a modest improvement in immediate liquidity capacity.

Overall Summary:
The liquidity profile of Worthington Steel Inc. depicts a company with generally adequate current assets compared to its short-term obligations, though there are some fluctuations. The current ratio has experienced some decline but remains above 1, which suggests the company can likely meet short-term liabilities without significant distress. The quick ratio's considerable rebound from a negligible level to near 0.84 indicates improved liquidity of readily available assets, though it has not yet reached a level indicative of strong immediate liquidity. The cash ratio remains relatively low, implying limited cash reserves, but the gradual increase reflects efforts to bolster liquidity cash holdings. These trends collectively suggest a cautious but improving liquidity stance, with the company maintaining the ability to meet short-term obligations, albeit with a reliance on non-cash current assets.

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Additional liquidity measure

The cash conversion cycle (CCC) of Worthington Steel Inc over the analyzed period demonstrates notable fluctuations, reflecting changes in the company's operational efficiency related to inventory management, receivables, and payables.

As of August 31, 2022, the CCC was approximately 56.59 days. This indicates that, on average, it took the company about 56.6 days to convert its investments in inventory and receivables into cash after accounting for trade payables. This period suggests a moderate length of working capital cycles typical for a steel manufacturing company, with room for potential improvements in operational cash flow.

By May 31, 2023, the CCC decreased to approximately 49.56 days. This reduction signifies an enhancement in the company's operational efficiency, possibly due to shorter inventory turnover periods, improved collection processes for receivables, or extended credit periods with suppliers. A shorter CCC generally implies a more efficient working capital cycle, reducing the cash tied up in operations.

The trend continued as of August 31, 2023, with a further reduction to approximately 46.28 days. This represents continued operational improvements or adjustments in working capital management, further shortening the cycle and benefiting cash flow.

However, there was a notable change by May 31, 2024, when the CCC increased again to approximately 53.77 days. This elongation could indicate either an increase in the days inventory remains in stock, slower collection of receivables, or changes in supplier payment terms. Such an increase suggests potential pressures on working capital efficiency, possibly requiring managerial attention to sustain optimal cash flow levels.

Most recently, as of May 31, 2025, the CCC slightly increased to approximately 54.41 days, maintaining a level close to the previous measurement. This stability indicates that the cash conversion cycle remains somewhat elongated compared to the 2023 lows, implying that operational efficiencies have not been fully restored to earlier levels but are relatively stable.

Overall, the company experienced a significant reduction in its CCC from August 2022 through August 2023, signaling operational improvements. However, subsequent increases suggest periods of operational adjustments or market conditions affecting working capital management. Maintaining or further reducing the CCC could be strategic in enhancing liquidity and operational efficiency over the longer term.