West Pharmaceutical Services Inc (WST)

Based on the provided data for West Pharmaceutical Services Inc, the company's liquidity ratios have shown fluctuating trends over the years:

1. Current Ratio:
- The current ratio, which measures the company's ability to cover its short-term obligations with its current assets, has generally been healthy and above 1.0 for each year.
- The ratio increased from 2.73 in 2020 to 3.70 in 2022, indicating a strengthening ability to meet short-term liabilities. However, there was a slight decline in 2023 and 2024, settling at 2.88 and 2.79, respectively.

2. Quick Ratio:
- The quick ratio, also known as the acid-test ratio, reflects the company's ability to meet short-term obligations with its most liquid assets.
- The trend for the quick ratio has been more varied than the current ratio, with a decrease from 1.65 in 2020 to 0.88 in 2024. This implies a potential reduction in the company's ability to cover its short-term liabilities without relying on inventory.

3. Cash Ratio:
- The cash ratio, which is the most stringent measure of liquidity, focuses solely on the company's cash and cash equivalents to meet its current liabilities.
- Similar to the quick ratio, the cash ratio also declined over the years from 1.65 in 2020 to 0.88 in 2024, indicating a potential decrease in the company's ability to cover its short-term obligations with cash alone.

In conclusion, while West Pharmaceutical Services Inc has maintained a current ratio above 1.0, suggesting a generally healthy liquidity position, the declining trend in quick and cash ratios may indicate a potential need for the company to better manage its short-term liquidity and ensure a robust cash position to meet obligations promptly. Further analysis of the components contributing to these ratios may provide insights into the company's liquidity management strategies.

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Additional liquidity measure

The cash conversion cycle of West Pharmaceutical Services Inc has exhibited fluctuations over the past five years. As of December 31, 2020, the company's cash conversion cycle stood at 85.04 days, decreasing slightly to 83.41 days by December 31, 2021. However, there was a subsequent increase to 86.48 days by December 31, 2022, followed by a further rise to 87.15 days by December 31, 2023. Notably, there was a significant improvement in efficiency by December 31, 2024, with the cash conversion cycle reducing to 72.63 days.

The cash conversion cycle is a crucial metric for assessing how efficiently a company manages its working capital. A lower cash conversion cycle indicates that a company is able to convert its investments in inventory into cash more quickly, which can enhance liquidity and overall financial performance. West Pharmaceutical Services Inc should continue to monitor and potentially improve its cash conversion cycle to optimize its working capital management and strengthen its financial position.