DexCom Inc. (NASDAQ:DXCM)

The liquidity ratios show a clear trend of gradual decline over the analyzed periods, indicating a reduction in the company's short-term financial strength.

Current ratio

The current ratio started at a very strong level of 5.83 in the first quarter of 2018, reaching a peak of 7.64 in the last quarter of 2018. Following this peak, it generally declined, with minor fluctuations, dropping significantly to 1.99 by the first quarter of 2023. This reflects a substantial decrease in current assets relative to current liabilities, suggesting a reduced buffer to cover short-term obligations over time.

Quick ratio

The quick ratio mirrored the current ratio's pattern, beginning at 5.26 in early 2018 and peaking at 7.25 at the end of 2018. After this peak, it experienced a downward trend with some variability, falling to a low of 1.72 in the first half of 2023 before a slight recovery to 2.40 by the third quarter of 2023. This decline indicates a shrinking proportion of liquid assets (excluding inventory) compared to current liabilities.

Cash ratio

The cash ratio exhibited a similar declining pattern, starting at 4.27 in the first quarter of 2018 and surging to 6.27 in the second quarter of 2020. The ratio decreased steadily afterwards, reaching its lowest point of 1.34 in the first quarter of 2023 before moderately increasing to 1.93 by the third quarter of 2023. This trend shows a diminishing level of cash and cash equivalents available for immediate liabilities, although the company still maintained a cash ratio above 1, indicating coverage of current liabilities with cash.

Overall, while the company maintained strong liquidity ratios throughout most of the period, the significant decline from 2019 onwards suggests a reduction in short-term liquidity reserves. This downward trajectory indicates potential changes in working capital management or asset composition, which may warrant closer monitoring to assess impacts on financial flexibility and operational stability.

Current assets

Current assets displayed a rising trajectory from March 2018 through June 2021, increasing from approximately 729 million USD to around 3.7 billion USD. From June 2021 to December 2022, current assets fluctuated moderately but generally maintained a level close to 3.7 billion USD. Notably, a sharp increase occurred in June 2023, peaking near 5 billion USD, followed by a slight decline in September 2023.

Current liabilities

Current liabilities increased steadily from about 125 million USD in March 2018 to a peak exceeding 1.8 billion USD in March 2023. This represents a substantial rise in short-term obligations over the period. After March 2023, current liabilities showed a decreasing trend, reaching approximately 1.68 billion USD in September 2023.

Current ratio

The current ratio started at a high level near 5.83 in March 2018, peaked at 7.64 in December 2018, and then displayed a gradual downward trend over the years. By December 2022, the ratio fell significantly to 1.99, indicating a substantial reduction in liquidity relative to current liabilities. However, from March 2023 to September 2023, the current ratio improved slightly, increasing from 2.02 to 2.8, signaling a modest recovery in short-term financial health.

Summary

Overall, current assets have generally increased substantially over the analyzed periods, indicating growth in short-term resource holdings. Simultaneously, current liabilities have exhibited a marked rise, suggesting growing short-term financial obligations. The current ratio trend reflects an initial strong liquidity position followed by a consistent decline, dipping below the typical benchmark of 2.0 around early 2023, before recovering somewhat in mid to late 2023. This pattern suggests that while the company maintained solid liquidity in earlier years, more recent periods saw increased pressure on working capital management, though recent improvements hint at a potential stabilization.

Total Quick Assets

The total quick assets generally show an upward trend from March 2018 through December 2021, increasing from approximately $658 million to around $3.25 billion. There is significant growth particularly noticeable between March 2020 and December 2020, where the values increase sharply from $1.81 billion to over $3.1 billion. From March 2022 onwards, quick assets demonstrate some volatility: initial growth is observed at the beginning of 2022, peaking at about $3.32 billion in June 2022, followed by a decline to approximately $2.94 billion by September 2022. Subsequently, a recovery occurs, reaching $4.39 billion in June 2023, before a slight contraction to $4.03 billion by September 2023.

Current Liabilities

Current liabilities display a consistent rising pattern from $125 million in March 2018 to $900 million by March 2023. The increase is particularly marked from December 2021 to March 2023, where liabilities double from roughly $807 million to $1.84 billion, indicative of an increased short-term financial obligation during this period. Following the peak in June 2023, current liabilities decrease noticeably, falling to around $1.68 billion by September 2023.

Quick Ratio

The quick ratio, reflecting liquidity, shows substantial variation over the period analyzed. Initially high at 5.26 in March 2018, the ratio declines somewhat by the end of 2019, moving to around 5.05, but remains well above the typical benchmark of 1, indicating high liquidity. A notable peak is observed at 7.25 in December 2018 and again at 7.01 in June 2020, suggesting exceptionally strong liquidity during these quarters. From late 2021 to early 2023, the quick ratio declines sharply, reaching a low of 1.72 in March 2023 and June 2023, reflecting that growth in current liabilities has outpaced quick assets, thereby reducing liquidity. However, by September 2023, a modest recovery is seen with the ratio increasing to 2.4, indicating some improvement in short-term financial stability.

Overall Analysis

The data reflect a period of substantial growth in quick assets accompanied by a rising trend in current liabilities. This growth leads to fluctuating liquidity, with the quick ratio initially indicating a highly liquid position that deteriorates in recent quarters. The sharp increase in current liabilities in 2022 and early 2023 suggests increased short-term obligations, which compress liquidity despite the fluctuations in quick assets. The partial recovery of the quick ratio toward mid-2023 suggests some corrective actions or improvements in asset liquidity relative to liabilities. Continuous monitoring of current liabilities and liquidity ratios would be advisable to ensure the company's ability to meet short-term obligations without stress.

Total Cash Assets

The total cash assets exhibited a general upward trend from March 2018 through December 2021, increasing from approximately $533.9 million to around $2.73 billion. Notable surges occurred in the second quarter of 2020 and continued growth into 2021. However, beginning in the first quarter of 2022, total cash assets experienced some volatility, with a decline in the third quarter of 2022 followed by partial recovery in subsequent quarters, reaching about $3.6 billion in the second quarter of 2023 before declining again by the third quarter of 2023 to approximately $3.24 billion.

Current Liabilities

Current liabilities showed a consistent rising trend throughout the observed period, increasing steadily from $125.1 million in the first quarter of 2018 to a peak of $1.87 billion in the third quarter of 2023. There were sharp increases notably in 2022, where liabilities nearly doubled from $900.5 million in the first quarter to $1.84 billion in the third quarter. A decrease is observed in the last quarter of 2023, indicating some reduction in short-term obligations.

Cash Ratio

The cash ratio demonstrated significant fluctuations over time. Initially, it started at a high level of 4.27 in the first quarter of 2018 and generally declined until reaching lower values near 1.34 and 1.38 in the first two quarters of 2023. The ratio peaked again around 6.23 during the last quarter of 2018 and the second quarter of 2020, reflecting periods where the company held significantly more cash relative to its current liabilities. The downward trend in the latest periods suggests that although cash holdings are substantial, they are growing at a slower pace relative to current liabilities, reducing the short-term liquidity cushion.

Overall Analysis

The data reflects a company that substantially increased its cash holdings over the observed period, particularly between 2018 and 2021, which coincided with rising current liabilities. The increase in current liabilities outpaced cash asset growth beginning in 2022, resulting in a declining cash ratio. This could indicate increasing operational or financial commitments requiring more cash or a strategic shift towards utilizing cash assets. While the liquidity remains above a ratio of 1, indicating the company generally maintains cash assets exceeding current liabilities, the declining ratio trend points to reduced liquidity buffer relative to liabilities in recent quarters. The fluctuations in cash and liabilities warrant close monitoring to assess liquidity risk and cash management efficiency going forward.