Xpel Inc (XPEL)

Liquidity ratios provide valuable insights into a company's ability to meet its short-term obligations with its current assets. Let's analyze the liquidity ratios of XPEL Inc over the past five years.

1. Current Ratio:
The current ratio measures the company's ability to cover its current liabilities with its current assets. XPEL Inc's current ratio has shown a fluctuating trend over the past five years, ranging from 2.18 to 4.02. A current ratio above 1 indicates that the company has more than enough current assets to meet its short-term obligations. XPEL Inc's current ratio has generally been healthy and has improved over the years, reaching its peak at 4.02 in 2023, suggesting enhanced liquidity and financial strength.

2. Quick Ratio:
The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventories from current assets. XPEL Inc's quick ratio has varied between 0.75 and 1.91 over the past five years. A quick ratio above 1 indicates that the company can meet its short-term liabilities without relying on selling inventory. Despite fluctuations, XPEL Inc's quick ratio has generally remained above 1, signaling a sufficient level of liquid assets to cover short-term obligations.

3. Cash Ratio:
The cash ratio measures a company's ability to cover its current liabilities with its cash and cash equivalents alone. XPEL Inc's cash ratio has ranged from 0.37 to 1.44 over the past five years. A cash ratio above 1 indicates that the company can fully cover its current liabilities with cash on hand. XPEL Inc's cash ratio has shown variability but has generally displayed a healthy level of cash reserves relative to its current liabilities.

Overall, XPEL Inc has demonstrated strong liquidity positions as reflected by its current, quick, and cash ratios. The improving trend in these ratios indicates the company's enhanced ability to meet its short-term obligations and suggests a sound financial position in terms of liquidity management.

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Additional liquidity measure

The cash conversion cycle of XPEL Inc has exhibited fluctuations over the past five years. In 2023, the company's cash conversion cycle increased to 151.25 days from 134.40 days in 2022, indicating a lengthening of the time it takes to convert its investments in raw materials into cash receipts from customers. This deterioration in efficiency may suggest potential challenges in managing working capital effectively.

Comparing 2023 to earlier years, we observe a significant increase from the 78.03 days in 2021, and an even more substantial rise from the 54.83 days in 2020 and 52.88 days in 2019. Such a trend indicates a slowing down of the company's cash conversion process over time, which could potentially impact its liquidity and operational performance.

A high cash conversion cycle may point to issues such as slow inventory turnover, extended A/R collection periods, or delayed payment of A/P. Management should closely monitor and address the underlying causes contributing to the elongation of the cash conversion cycle to enhance operational efficiency and maintain healthy liquidity levels.