e.l.f. Beauty, Inc. (NYSE:ELF)

The company's liquidity ratios over the five-year period ending March 31, 2024, reveal notable fluctuations and an overall downward trend in its short-term financial health.

Current Ratio

The current ratio starts at 2.59 in 2020, indicating relatively strong short-term liquidity. It decreases slightly to 2.32 in 2021 but then increases to 2.97 in 2022 and marginally declines to 2.81 in 2023. However, a significant decrease occurs in 2024, dropping to 1.59. This suggests the company’s current assets relative to current liabilities have weakened substantially in the most recent year.

Quick Ratio

The quick ratio displays a similar pattern to the current ratio but at consistently lower values, reflecting the exclusion of inventory from liquid assets. It decreases from 1.48 in 2020 to 1.34 in 2021, remaining relatively stable at 1.37 in 2022. It then rises to 1.75 in 2023, suggesting improved liquidity excluding inventory, before a sharp decline to 0.78 in 2024. This points to a significant reduction in near-cash assets or an increase in current liabilities during the final year.

Cash Ratio

The cash ratio, the most conservative liquidity measure, begins at 0.90 in 2020 and decreases steadily to 0.79 in 2021 and 0.67 in 2022. In 2023, it rises notably to 1.12, indicating stronger cash coverage of current liabilities. Yet, in 2024, the ratio plunges to 0.36, the lowest in the observed period, signaling a marked reduction in liquid cash or cash equivalents relative to short-term obligations.

Overall, the liquidity position appears to strengthen moderately in 2023 across all measures but deteriorates considerably in 2024. The consistently declining cash ratio, alongside decreases in current and quick ratios in the final year, may raise concerns about the company's ability to meet short-term obligations solely with cash or easily liquidated assets. This trend warrants closer examination of the underlying causes, such as changes in working capital management or shifts in current liabilities.

Current Assets

The current assets demonstrate a consistent upward trajectory over the five-year period. Starting from US$132,360 thousand in 2020, there is a moderate increase through 2021 and 2022, followed by a more pronounced rise in 2023 and 2024, reaching US$477,077 thousand. This suggests an expanding asset base available for short-term obligations and operational needs.

Current Liabilities

The current liabilities exhibit a fluctuating pattern. Initially, there is a rise from US$51,123 thousand in 2020 to US$73,331 thousand in 2021, followed by a slight decrease in 2022 to US$65,017 thousand. In 2023, liabilities sharply increase to US$107,976 thousand and escalate significantly in 2024 to US$299,115 thousand. This indicates increasing short-term obligations, particularly pronounced in the last two years.

Current Ratio

The current ratio, a measure of liquidity, generally remains above 2.3 from 2020 through 2023, indicating a comfortable liquidity position during these years. The ratio peaks at 2.97 in 2022, reflecting the strongest short-term financial health in the period. However, in 2024, the ratio decreases markedly to 1.59, signaling a reduced cushion to cover current liabilities and a potential tightening in liquidity despite the growth in current assets.

Overall Analysis

The company appears to be growing its current assets substantially, especially in the final two years. Nevertheless, the significant rise in current liabilities during 2023 and 2024 outpaces asset growth, leading to a notable decrease in the current ratio. This trend suggests increasing short-term financial pressure and reduced liquidity, which may warrant closer monitoring of working capital management moving forward.

Total Quick Assets

The total quick assets exhibited an overall increasing trend from 2020 to 2024. Initially, there was a rise from 75,888 thousand USD in 2020 to 97,953 thousand USD in 2021. This was followed by a slight decline in 2022 to 88,920 thousand USD. From 2022 to 2023, the value more than doubled to 188,706 thousand USD, continuing to grow in 2024 to reach 231,980 thousand USD.

Current Liabilities

Current liabilities showed a consistent upward trajectory over the same period. Starting at 51,123 thousand USD in 2020, liabilities increased to 73,331 thousand USD in 2021. After a minor reduction to 65,017 thousand USD in 2022, a significant rise occurred in 2023 to 107,976 thousand USD, and a dramatic jump in 2024 to 299,115 thousand USD.

Quick Ratio

The quick ratio, reflecting liquidity, began at a relatively healthy 1.48 in 2020. There was a slight decrease to 1.34 in 2021, followed by a modest recovery to 1.37 in 2022. In 2023, the ratio rose markedly to 1.75, indicating improved liquidity. However, in 2024, the ratio experienced a sharp decline to 0.78, suggesting a potential liquidity concern despite the increase in quick assets, primarily due to the substantial rise in current liabilities.

Overall Analysis

Although quick assets generally increased, the more pronounced escalation in current liabilities by 2024 outpaced the asset growth, leading to a notable decrease in the quick ratio. This indicates that the company’s short-term financial stability may have weakened in the most recent period. The fluctuations in the quick ratio over the years reflect variability in liquidity management, with a peak in 2023 followed by a reversal in 2024 that warrants careful attention.

The financial data reveals several notable trends and fluctuations over the five-year period ending March 31, 2024.

Total cash assets

The total cash assets exhibited an overall increase with some volatility. Initially, cash assets increased from approximately 46.2 million USD in March 2020 to a peak of 57.8 million USD in March 2021. Subsequently, a decline occurred in 2022 to 43.4 million USD, followed by a significant rise to 120.8 million USD in 2023 before slightly decreasing to 108.2 million USD in 2024. This pattern suggests strategic cash management or changes in operational liquidity needs during the period.

Current liabilities

Current liabilities steadily increased throughout the period, starting from about 51.1 million USD in 2020 and escalating to nearly 299.1 million USD by 2024. The rise was particularly sharp between 2023 and 2024, more than doubling from roughly 108 million USD. This rapid increase may imply a growing short-term obligation burden or increased utilization of credit facilities.

Cash ratio

The cash ratio, indicating the company's ability to cover current liabilities with cash and cash equivalents, demonstrated a declining trend overall. It started near parity at 0.90 in 2020, decreased to 0.67 by 2022, briefly rose above 1 to 1.12 in 2023, reflecting improved liquidity, before sharply falling to 0.36 in 2024. The low cash ratio at the end of the period suggests diminished cash coverage relative to short-term liabilities, highlighting potential liquidity risk despite substantial total cash assets.

In summary, while cash assets reached a high point in the third year and remained relatively elevated, the surge in current liabilities outpaced cash growth, leading to a weakened cash ratio. This divergence underscores the importance of monitoring short-term obligations and ensuring sufficient liquid resources to maintain financial stability going forward.