Watsco Inc (WSO)

Liquidity ratios

Dec 31, 2024 Sep 30, 2024 Jun 30, 2024 Mar 31, 2024 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
Current ratio 3.13 3.36 3.21 2.92 3.36 3.08 3.02 2.73 2.54 2.57 2.47 2.77 2.70 2.49 2.48 2.69 3.00 2.70 2.55 3.06
Quick ratio 0.79 0.59 0.66 0.47 0.30 0.20 0.17 0.15 0.16 0.14 0.12 0.13 0.16 0.31 0.12 0.31 0.49 0.32 0.12 0.10
Cash ratio 0.79 0.59 0.66 0.47 0.30 0.20 0.17 0.15 0.16 0.14 0.12 0.13 0.16 0.31 0.12 0.31 0.49 0.32 0.12 0.10

The analysis of Watsco Inc's liquidity ratios reveals the following insights:

1. Current Ratio: The current ratio measures the company's ability to meet its short-term obligations with its current assets. Watsco Inc's current ratio has been consistently above 2 in the past few years, indicating that the company has more than enough current assets to cover its current liabilities. The ratio remained stable around 2.5 to 3.5, showing a healthy liquidity position.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a stricter measure of liquidity by excluding inventories from current assets. Watsco Inc's quick ratio has been relatively low, starting from 0.1 in March 2020 and gradually improving over time, reaching 0.79 by December 2024. While the ratio was initially very low, the company managed to increase its ability to meet short-term obligations without relying heavily on inventory.

3. Cash Ratio: The cash ratio shows the proportion of a company's current assets held in cash or cash equivalents to cover current liabilities. Watsco Inc's cash ratio followed a similar trend to the quick ratio, starting at 0.1 in March 2020 and reaching 0.79 by December 2024. This shows the company's increasing ability to cover immediate liabilities with cash on hand.

Overall, Watsco Inc has maintained a strong liquidity position over the years, with the current ratio consistently above 2 and improvements in the quick and cash ratios indicating a better ability to meet short-term obligations without relying heavily on inventory.

Additional liquidity measure

Dec 31, 2024 Sep 30, 2024 Jun 30, 2024 Mar 31, 2024 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
Cash conversion cycle days 90.41 106.04 105.14 113.31 92.93 107.73 119.14 111.74 95.37 97.30 107.84 104.75 88.27 86.74 89.75 92.04 75.61 85.62 85.00 93.60

The cash conversion cycle measures the time it takes for a company to convert its investment in inventory into cash flow from sales. For Watsco Inc, the cash conversion cycle has fluctuated over the period analyzed.

From March 31, 2020, to December 31, 2024, we observed fluctuations in the cash conversion cycle, ranging from a low of 75.61 days to a high of 119.14 days. A lower cash conversion cycle is generally preferred as it indicates that the company is efficient in managing its working capital.

During this period, the cash conversion cycle increased from 93.60 days on March 31, 2020, to 113.31 days on March 31, 2024, before declining slightly to 90.41 days by December 31, 2024. This trend suggests that Watsco Inc may have faced challenges in managing its working capital efficiently, leading to longer cash conversion cycles.

It is essential for the company to focus on reducing the cash conversion cycle to improve liquidity, manage working capital effectively, and optimize its operations. This can be achieved through strategies such as enhancing inventory management, streamlining the accounts receivable process, and negotiating favorable payment terms with suppliers.