Cadence Design Systems Inc. (NASDAQ:CDNS)

Analysis of Liquidity Ratios

The current ratio displays a declining trend from 1.86 in 2020 to 1.24 in 2023, indicating a gradual decrease in the company's ability to cover its short-term liabilities with current assets. However, there is a notable increase to 2.93 in 2024, suggesting a significant improvement in liquidity during that year.

Similarly, the quick ratio declines from 1.6 in 2020 to 1.02 by 2022 and remains stable at 1.02 in 2023. This signifies a reduced capacity to cover immediate liabilities without relying on inventory, reflecting potential tightening in liquid asset availability. The subsequent sharp rise to 2.53 in 2024 suggests enhanced liquidity and better short-term financial health.

The cash ratio follows this overall pattern, starting at 1.17 in 2020, decreasing to 0.66 in 2022, and slightly increasing to 0.72 in 2023. This indicates diminishing cash and cash equivalents relative to current liabilities during the first four years, limiting cash reserves for immediate obligations. A substantial increase to 2.03 in 2024 points to a considerable accumulation of cash or cash equivalents, strengthening the company’s immediate liquidity position.

Summary of Trends

Between 2020 and 2023, all three key liquidity ratios exhibit a downward trend, indicating progressively tighter liquidity and potentially constrained short-term financial flexibility. This decline suggests that the company faced challenges in maintaining readily available assets to cover short-term liabilities during this period.

The marked increases across all three ratios in 2024 reflect a significant shift towards a stronger liquidity position. This improvement may result from strategic management of current assets and liabilities or from an increase in cash reserves, enhancing the capacity to meet short-term obligations comfortably.

The financial data displays significant fluctuations in key liquidity indicators over the five-year period. Current assets experienced an overall upward trend, rising from approximately $1.48 billion at the end of 2020 to about $4.02 billion by the end of 2024. This increase is marked by steady growth through 2023, followed by a particularly sharp rise in 2024.

Current liabilities also showed an increase, climbing from roughly $797 million in 2020 to a peak of about $1.59 billion in 2023. However, there was a noticeable reduction in liabilities in 2024 to approximately $1.37 billion, suggesting some improvement in short-term obligations during the final year analyzed.

The current ratio, which measures liquidity by comparing current assets to current liabilities, reflected these asset and liability movements. Starting at a solid 1.86 in 2020, the ratio gradually declined year-over-year, falling to 1.24 in 2023. This trend indicates a reduction in the company's short-term financial flexibility during that period. In 2024, the current ratio improved dramatically to 2.93, driven by the substantial increase in current assets paired with a decrease in current liabilities. This change signals a notable enhancement in the company's ability to cover its short-term liabilities with its short-term assets.

Overall, the data suggest that while the company faced increased short-term liabilities through 2023, its liquidity position strengthened significantly by the end of 2024, primarily due to asset growth and liability reduction. This pattern could reflect strategic financial management steps aimed at bolstering liquidity or changes in working capital dynamics.

Total quick assets

The total quick assets exhibit a generally increasing trend over the five-year period. Starting at approximately 1.27 billion USD at the end of 2020, the figure rises steadily, reaching around 1.43 billion USD in 2021. A slight decline is observed in 2022, dropping to about 1.37 billion USD, followed by a recovery to approximately 1.63 billion USD in 2023. A significant surge occurs in 2024, with total quick assets more than doubling to roughly 3.47 billion USD, indicating a substantial improvement in highly liquid assets.

Current liabilities

Current liabilities display an overall upward trajectory from 2020 through 2023, increasing from about 797 million USD to nearly 1.59 billion USD. However, in 2024, current liabilities decline to approximately 1.37 billion USD, suggesting a reduction in short-term obligations or a restructuring of liabilities. The rise in liabilities from 2020 to 2023 may suggest increased operational or financing activities, while the subsequent decrease could imply improved liability management or payment of obligations.

Quick ratio

The quick ratio reveals notable fluctuations consistent with the changes in quick assets and current liabilities. It starts relatively strong at 1.6 in 2020, indicating a healthy short-term liquidity position. The ratio decreases over the next two years, dropping to 1.47 in 2021 and further down to 1.02 by 2022, suggesting diminishing liquidity relative to current liabilities. The ratio remains stable at 1.02 in 2023, implying that liquid assets just cover current liabilities. In 2024, the quick ratio markedly improves to 2.53, reflecting a significant enhancement in the company's ability to cover short-term obligations with liquid assets, primarily driven by the substantial increase in quick assets alongside a reduction in current liabilities.

Total cash assets

The total cash assets exhibit a fluctuating pattern over the observed periods. Initially, there is an increase from approximately 933 million US dollars at the end of 2020 to around 1.09 billion US dollars in 2021. This is followed by a decline to about 887 million US dollars by the end of 2022. Subsequently, cash assets increase again in 2023 to roughly 1.14 billion US dollars, with a significant jump recorded in 2024, reaching approximately 2.78 billion US dollars. This pattern indicates considerable volatility with a pronounced surge in liquidity in the last reported year.

Current liabilities

Current liabilities show a steady increase from 797 million US dollars at the end of 2020 to a peak of approximately 1.59 billion US dollars in 2023. However, in 2024, current liabilities decline to around 1.37 billion US dollars. The trend suggests growing short-term obligations over most of the period, with a recent partial reduction.

Cash ratio

The cash ratio, which measures the company's ability to cover current liabilities with its most liquid assets, begins at a strong position of 1.17 in 2020, indicating more cash assets than current liabilities. It slightly decreases to 1.13 in 2021, then drops significantly to 0.66 in 2022 and only slightly recovers to 0.72 in 2023. This decline reflects a weakening liquidity position in those years. However, in 2024, there is a marked improvement to 2.03, reflecting a robust liquidity position where cash assets substantially exceed current liabilities.

Overall Insight

Over the five-year span, the liquidity position of the company demonstrates notable fluctuations. While the mid-period years show a reduction in liquidity and an increase in current liabilities, the final year reveals a pronounced strengthening of the cash reserves relative to liabilities. This shift could imply a strategic focus on improving short-term financial stability or preparation for upcoming expenditures or investments.