Xpel Inc (XPEL)

Xpel Inc's liquidity ratios have shown fluctuations over the past five years. Starting with the current ratio, it decreased from 2.96 in December 31, 2020, to 2.18 by December 31, 2021. However, in the subsequent years, the current ratio increased significantly, reaching 4.05 by December 31, 2024, indicating a strong ability to cover its short-term obligations with current assets.

Moving on to the quick ratio, which excludes inventory from current assets, it experienced a significant drop from 1.37 in December 31, 2020, to 0.27 by December 31, 2021, suggesting a potential liquidity concern in the short term. The quick ratio slightly improved in the following years, reaching 0.53 by December 31, 2024, but it still remains relatively low compared to the current ratio.

Additionally, the cash ratio, which is the most conservative measure of liquidity, mirrored the trend of the quick ratio. It decreased from 1.37 in December 31, 2020, to 0.27 by December 31, 2021, before gradually increasing to 0.53 by December 31, 2024. This indicates that Xpel Inc's ability to pay off its current liabilities solely with cash and cash equivalents improved over the years but remains relatively low compared to the current assets.

Overall, Xpel Inc's liquidity position seems to have strengthened over the years, as indicated by the improvement in the current ratio and the more conservative cash ratio. However, the company may still need to focus on managing its short-term liquidity better, as evidenced by the lower quick ratio compared to the current ratio.

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Additional liquidity measure

The cash conversion cycle of Xpel Inc has shown a notable increase over the observed period. It started at 77.82 days as of December 31, 2020 and gradually extended to 166.56 days by December 31, 2024. This indicates a significant lengthening of the time it takes for the company to convert its investments in inventory into cash receipts from customers.

The increasing trend in the cash conversion cycle implies that Xpel Inc may be facing challenges in managing its working capital efficiently. A longer cash conversion cycle can tie up more of the company's funds in operations, potentially leading to liquidity constraints and impacting the overall financial health of the business.

It would be beneficial for Xpel Inc to closely monitor its inventory management, accounts receivable collection, and accounts payable payment processes to potentially reduce the duration of the cash conversion cycle. By optimizing these components, the company can enhance its cash flow generation and strengthen its ability to meet financial obligations in a timely manner.