Xerox Corp (XRX)

The liquidity ratios of Xerox Holdings Corp, as reflected by the current ratio, quick ratio, and cash ratio, indicate the company's ability to meet its short-term financial obligations.

1. Current Ratio: The current ratio measures the company's ability to pay off its current liabilities using its current assets. A current ratio above 1 suggests the company can meet its short-term obligations. Xerox's current ratio has shown a decreasing trend over the past five years, from 2.39 in 2019 to 1.14 in 2023. This decline may indicate a potential liquidity challenge as current assets may be insufficient to cover current liabilities.

2. Quick Ratio: The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. A quick ratio above 1 indicates that the company can cover its short-term obligations without relying on inventory sales. Xerox's quick ratio has also witnessed a declining trend, from 2.19 in 2019 to 0.88 in 2023. This decrease may imply a reduction in the company's ability to quickly generate cash to cover immediate obligations.

3. Cash Ratio: The cash ratio focuses solely on the company's ability to cover its current liabilities with cash and cash equivalents. A higher cash ratio indicates a stronger ability to meet short-term obligations immediately. Xerox's cash ratio has also shown a decreasing pattern, from 0.85 in 2019 to 0.24 in 2023. This decline suggests a diminishing capacity to settle short-term liabilities with cash reserves alone.

In summary, Xerox Holdings Corp's liquidity ratios have shown a consistent downward trend over the past five years, indicating a potential liquidity strain. The declining ratios suggest that the company may be facing challenges in efficiently managing its short-term financial obligations and may need to revisit its liquidity management strategies to ensure financial stability.

---

Additional liquidity measure

The cash conversion cycle measures how long it takes for a company to convert its investments in inventory and other resources into cash from sales. A shorter cash conversion cycle indicates better efficiency in managing working capital.

Xerox Holdings Corp's cash conversion cycle has shown fluctuating trends over the past five years. In 2023, the company managed to reduce its cash conversion cycle to 62.67 days compared to 63.03 days in 2022, indicating an improvement in efficiency. This suggests that Xerox was able to convert its investments into cash more quickly, potentially due to better inventory management or collection of receivables.

In contrast, the significant decrease in the cash conversion cycle from 172.11 days in 2021 to 96.84 days in 2020 reflects a notable improvement in working capital efficiency during that period. This improvement could have resulted from streamlined processes in inventory management, faster collection of receivables, or effective payment of payables.

However, the increase in the cash conversion cycle from 96.84 days in 2020 to 160.97 days in 2019 indicates a reversal in working capital efficiency, suggesting that Xerox took longer to convert its investments into cash during that year.

Overall, Xerox Holdings Corp's management of its cash conversion cycle has shown variations over the past five years, with both improvements and regressions in working capital efficiency. Monitoring and optimizing the cash conversion cycle can help the company enhance its cash flow management and overall financial performance.