Watsco Inc (WSO)

Watsco Inc.'s liquidity ratios have exhibited variations over the past five years. The current ratio, measuring the company's ability to meet short-term obligations with its current assets, has shown fluctuations. As of December 31, 2023, the current ratio stands at 3.36, indicating an improvement from 2.54 in the previous year but still lower compared to 2019 and 2020. This suggests that Watsco's current assets are more than sufficient to cover its current liabilities, providing a comfortable buffer for short-term financial obligations.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, has also shown fluctuations. Watsco's quick ratio increased to 1.47 in 2023, reflecting an improvement from 1.02 in 2022 but remains below the levels observed in 2019 and 2020. This indicates that the company has an acceptable level of quick assets relative to its current liabilities to meet short-term obligations, although there is room for further enhancement.

In terms of the cash ratio, which only considers cash and cash equivalents in relation to current liabilities, Watsco Inc. has shown fluctuations in its cash holding capacity. The cash ratio stands at 0.35 in 2023, representing an increase from 0.20 in the previous year and exceeding the levels recorded in 2019 and 2021. This suggests that Watsco has improved its ability to cover its short-term liabilities solely with its cash reserves, which is a positive sign for financial stability.

In summary, Watsco Inc.'s liquidity ratios have shown some improvements in 2023 compared to the previous year, indicating a stronger ability to meet short-term obligations. However, the company might still need to focus on optimizing its liquidity management to ensure sustainable financial health and resilience in the face of uncertainties.

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Additional liquidity measure

The cash conversion cycle for Watsco Inc. has shown fluctuations over the past five years. In 2023, the cycle increased to 107.43 days compared to the previous year's 101.11 days. This indicates that it took Watsco Inc. longer to convert its investments in inventory and accounts receivable into cash in 2023.

In 2022 and 2021, the cycle remained relatively stable at around 100 days, showing consistent management of the company's working capital. However, in 2020, there was a decrease in the cash conversion cycle to 89.11 days, indicating an improvement in the efficiency of Watsco Inc.'s cash management that year.

The highest cash conversion cycle was recorded in 2019 at 109.65 days, suggesting a longer cash conversion period and potentially highlighting inefficiencies in working capital management during that period.

Overall, monitoring trends in the cash conversion cycle can provide insights into Watsco Inc.'s effectiveness in managing its cash flow, inventory, and accounts receivable, which are crucial for the company's financial health and operational efficiency.