SolarEdge Technologies Inc. (NASDAQ:SEDG)

The company's liquidity ratios over the observed quarterly periods show notable fluctuations, indicating changing levels of short-term financial health and cash availability.

Current Ratio

This ratio, representing the ability to cover current liabilities with current assets, started at a high level of 2.89 in early 2019 but showed a gradual decline through the end of 2019, reaching a low around 2.14. Subsequently, from early 2020, the ratio exhibited considerable improvement, peaking significantly at 4.56 in the third quarter of 2020. This peak was followed by a gradual decrease, although the ratio maintained relatively strong levels above 3.0 in most recent quarters, suggesting a sustained capability to meet short-term obligations.

Quick Ratio

The quick ratio, which excludes inventory and provides a more conservative liquidity measure, mirrored the current ratio’s trend but with slightly lower values. Initially, it decreased from 2.10 to 1.41 by the end of 2019, indicating a tightening liquidity position when considering only more liquid assets. From the first quarter of 2020, there was a marked improvement to a high of 3.51 in the third quarter of 2020. After this peak, the quick ratio showed some volatility but remained generally above 2.0, reflecting a relatively healthy liquidity status excluding inventory.

Cash Ratio

This most conservative liquidity metric, measuring cash and cash equivalents against current liabilities, followed a similar pattern but with the sharpest variations. Starting at 1.34 in early 2019 and declining to 0.72 by the end of that year, it demonstrates a shrinking cash buffer. Like the other ratios, a sharp increase occurred in 2020, reaching 3.03 in the third quarter, indicating a substantial buildup of cash reserves. Following this peak, the cash ratio declined moderately but stayed well above the levels seen in 2019, ranging between 1.15 and 2.04 in the latest quarters. This suggests improved cash management and stronger liquidity cushions over the longer term.

In summary, the liquidity profile depicts a company that initially experienced declining short-term liquidity through 2019 but significantly strengthened its liquidity position throughout 2020, with all ratios reaching peak values in the third quarter of that year. Although some normalization occurred afterward, liquidity ratios remain elevated compared to pre-2020 levels, indicating a more robust short-term financial posture in recent periods.

The analysis of the quarterly financial data reveals notable trends in the company's liquidity position over the examined periods.

Current Assets

There is a consistent upward trajectory in current assets from March 31, 2019, to December 31, 2022. Starting at approximately $717.5 million, current assets steadily increased, with a particularly sharp rise observable around the second half of 2020 and continuing into 2022, culminating near $2.9 billion by the last quarter. This reflects significant growth in the company's short-term asset base, indicative of improved resource availability for meeting upcoming obligations.

Current Liabilities

Current liabilities show a generally increasing trend as well, beginning at about $248.1 million in March 2019 and reaching approximately $889.7 million by December 2022. While growth in liabilities is evident, the rate of increase appears less steep than that of current assets overall. There are periods of fluctuation, such as a slight dip in late 2020 followed by consistent increases through 2021 and 2022, signaling adjustments in short-term obligations over time.

Current Ratio

The current ratio, reflecting the relationship between current assets and current liabilities, reveals a pattern of relative strength with fluctuations. The ratio declined from 2.89 in the first quarter of 2019 to a low near 2.14 by the end of that year, indicating a reduction in liquidity. However, from early 2020, the ratio improved significantly, peaking at 4.56 in September 2020, suggesting an enhanced ability to cover short-term liabilities. Subsequently, the ratio stabilized within a range of roughly 3.26 to 4.33 through 2022, demonstrating maintained strong liquidity despite modest declines toward the end of the period.

Overall, the company's liquidity position has strengthened markedly over the period analyzed, with current assets growing at a faster pace than current liabilities. The current ratio's recovery after an initial decline and its consistent maintenance above 3.0 in recent quarters suggest prudent management of short-term financial obligations and resources. This trend indicates an improving capacity to meet near-term liabilities, contributing to financial stability.

The analysis of the quarterly financial data reveals several noteworthy trends in liquidity and short-term financial health. The total quick assets exhibit a general upward trajectory over the observed periods, starting from approximately 521 million US dollars in the first quarter of 2019 to reaching nearly 1.93 billion US dollars by the last quarter of 2022. This increase reflects a significant enhancement in the company’s readily available liquid assets.

Current liabilities show a consistent rising trend from around 248 million US dollars at the beginning of 2019 to almost 890 million US dollars at the end of 2022. Although liabilities are increasing, the growth rate in total quick assets outpaces that of current liabilities, suggesting improved liquidity management over time.

The quick ratio, a key indicator of short-term liquidity, fluctuates throughout the quarters but remains above 1.0 in all periods, indicating that the company maintained sufficient quick assets to cover its current liabilities at each quarter end. After starting at 2.1 in the first quarter of 2019, the ratio dips to its lowest point near 1.41 by the end of 2019. Subsequently, it recovers and peaks at 3.51 in the third quarter of 2020, reflecting an exceptionally strong liquidity position at that time. Following this peak, the quick ratio gradually declines but stays comfortably above 2.0 for most of 2021 and 2022, ending at 2.17 in the fourth quarter of 2022.

This pattern indicates that despite fluctuations, the company has maintained a robust quick ratio, which implies strong capability to meet short-term obligations without relying on inventory sales. The spikes and declines in the quick ratio can be linked to corresponding movements in quick assets and current liabilities, with a notable jump in quick assets in late 2020 accounting for the highest quick ratio observed.

Overall, the data reflect an improving liquidity position with a healthy buffer of liquid assets relative to current liabilities. This progression enhances the company’s financial flexibility and short-term solvency, which are positive indicators for its operational stability and financial risk management.

Total Cash Assets

The total cash assets exhibited significant fluctuations over the observed period. Initially, cash holdings were around $333.5 million at the end of March 2019, declining moderately in mid-2019 before recovering by the end of the year. A notable increase began in the first quarter of 2020, peaking sharply at approximately $1.16 billion in the third quarter of 2020. After this peak, cash assets decreased somewhat but remained elevated relative to the earlier periods, maintaining a level above $800 million through 2022, with some volatility between quarters.

Current Liabilities

Current liabilities generally trended upward throughout the period. After starting near $248 million at the end of March 2019, they increased consistently with some fluctuations, crossing the $500 million mark by the end of 2021. The upward trend accelerated in 2022, with liabilities reaching nearly $890 million by the last quarter of the year. This represents a significant growth in obligations concurrent with the company’s cash position developments.

Cash Ratio

The cash ratio shows considerable variability but remained mostly above 1.0, indicating that cash assets generally exceeded current liabilities. Early in 2019, the ratio started strong at 1.34 but dropped below 1.0 during mid to late 2019, reaching a low of 0.72 by year-end, signaling that cash assets were insufficient relative to current liabilities at that time. A rebound occurred in 2020, peaking at an exceptionally high ratio of 3.03 in the third quarter, reflecting a strong liquidity position. From 2021 onward, the ratio gradually declined again, though it remained above 1.0, suggesting liquidity was sufficient but diminishing relative to liabilities as the year progressed.

Overall Analysis

The data reflects a dynamic liquidity profile, with cash assets peaking sharply in 2020, possibly due to strategic financial decisions or external capital inflows. Meanwhile, current liabilities increased steadily, impacting liquidity as measured by the cash ratio. Despite the declining cash ratio from its 2020 peak, the company maintained a cash buffer exceeding its current liabilities, indicating prudent liquidity management though the margin has tightened through late 2022.