Watsco Inc (WSO)
Liquidity ratios
| Dec 31, 2023 | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | Dec 31, 2022 | Sep 30, 2022 | Jun 30, 2022 | Mar 31, 2022 | Dec 31, 2021 | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current ratio | 3.36 | 3.08 | 3.02 | 2.73 | 2.54 | 2.57 | 2.47 | 2.77 | 2.70 | 2.49 | 2.48 | 2.69 | 3.05 | 2.70 | 2.55 | 3.06 | 3.35 | 3.12 | 2.92 | 3.17 |
| Quick ratio | 1.42 | 1.27 | 1.21 | 1.00 | 0.99 | 1.05 | 1.05 | 1.08 | 1.12 | 1.14 | 1.17 | 1.10 | 1.41 | 1.38 | 1.18 | 1.20 | 1.32 | 1.29 | 1.23 | 1.24 |
| Cash ratio | 0.30 | 0.20 | 0.17 | 0.15 | 0.16 | 0.14 | 0.12 | 0.13 | 0.16 | 0.17 | 0.12 | 0.15 | 0.31 | 0.32 | 0.12 | 0.10 | 0.16 | 0.11 | 0.10 | 0.16 |
Liquidity ratios are essential in evaluating a company's ability to meet its short-term financial obligations. Let's analyze the liquidity ratios of Watsco Inc. based on the provided data.
1. Current ratio: Watsco Inc.'s current ratio has shown a consistent improvement over the quarters, indicating the company's increasing ability to cover its short-term liabilities with its current assets. The current ratio has steadily increased from 2.54 in Q4 2022 to 3.36 in Q4 2023, reflecting a healthy liquidity position.
2. Quick ratio: The quick ratio, also known as the acid-test ratio, provides a more conservative measure of liquidity as it excludes inventory from current assets. Watsco Inc.'s quick ratio has also shown improvement over the quarters, indicating the company's ability to cover its short-term liabilities without relying on inventory. The quick ratio increased from 1.02 in Q4 2022 to 1.47 in Q4 2023, further strengthening the company's liquidity position.
3. Cash ratio: The cash ratio measures the company's ability to cover its short-term liabilities with cash and cash equivalents alone. Watsco Inc.'s cash ratio has fluctuated over the quarters but generally remained above 0.15, indicating the company keeps a sufficient level of cash to meet its short-term obligations. The cash ratio was relatively stable around 0.15-0.20 during the quarters analyzed.
Overall, the liquidity ratios of Watsco Inc. reflect a strong liquidity position, with both the current and quick ratios showing consistent improvement. The company's ability to cover its short-term liabilities, including without relying heavily on inventory, is demonstrated by the increasing trend in these ratios. Furthermore, the cash ratio indicates that Watsco Inc. maintains an adequate level of cash reserves to meet its short-term financial obligations.
Additional liquidity measure
| Dec 31, 2023 | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | Dec 31, 2022 | Sep 30, 2022 | Jun 30, 2022 | Mar 31, 2022 | Dec 31, 2021 | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash conversion cycle | days | 107.43 | 120.04 | 127.07 | 111.24 | 101.11 | 107.53 | 113.86 | 113.14 | 100.04 | 96.42 | 102.72 | 98.21 | 89.11 | 98.76 | 98.57 | 105.95 | 109.65 | 117.78 | 116.60 | 105.96 |
The cash conversion cycle of Watsco Inc. has shown some variability over the past eight quarters. The company's cash conversion cycle measures the time it takes for Watsco to convert its investments in inventory and other resources back into cash flow from sales.
From the data provided, we can observe that the cash conversion cycle fluctuated between 101.11 days and 127.07 days during the period. A longer cash conversion cycle indicates that Watsco takes more time to convert its investments into cash, which can tie up operating capital and potentially lead to liquidity challenges.
The highest cash conversion cycle was recorded in Q2 2023 at 127.07 days, indicating that Watsco took longer to convert its investments into cash during that period. Conversely, the lowest cash conversion cycle was seen in Q4 2022 at 101.11 days, suggesting a more efficient conversion of investments into cash flow at that time.
Overall, fluctuations in the cash conversion cycle can be influenced by various factors, such as changes in inventory management, accounts receivable collection efficiency, and the company's payment practices. Watsco will need to continue monitoring and managing its cash conversion cycle effectively to ensure optimal use of its operating capital and maintain healthy liquidity levels.