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

Current Ratio Trends

The current ratio consistently remained above 2.0 from mid-2020 through early 2023, indicating a generally strong short-term liquidity position during this period. It showed a gradual increase starting from a low of 2.2 in June 2021, peaking at 3.51 by June 2022. However, from mid-2023 onwards, the ratio sharply declined, dropping below 2.0 by December 2023 and reaching a low of 1.5 in March 2024. A slight recovery occurred by June 2024, with the ratio increasing modestly to 1.77. This recent downward trend suggests a weakening ability to cover current liabilities with current assets.

Quick Ratio Patterns

The quick ratio exhibited values generally close to or slightly above 1.0 during the initial periods, suggesting reasonable liquidity excluding inventory. After a decline in late 2020 and early 2021, it stabilized around 1.2 to 1.3 through early 2022. A noticeable peak occurred in June 2022 at 2.02, aligning with the peak in the current ratio. Following this, the quick ratio fluctuated moderately but maintained levels mostly above 1.6 until late 2023. From December 2023, a significant drop is seen, plummeting to 0.64 in March 2024, then only marginally recovering to 0.88 by June 2024. This drop indicates a reduced capacity to meet short-term liabilities with the most liquid assets, excluding inventory.

Cash Ratio Behavior

The cash ratio value began near parity at 0.95 in mid-2020 but experienced a notable decline through late 2020 and early 2021, reaching lows around 0.53. It rebounded between 2021 and mid-2022, surpassing 1.0 and peaking at 1.3 in mid-2023, indicating strong coverage of current liabilities by cash and equivalents during this period. Subsequently, a steep decline was observed starting in late 2023, with the ratio falling significantly to approximately 0.24 by March 2024 and only slightly improving thereafter. This recent decline points to a considerably weakened cash position relative to current liabilities.

Overall Liquidity Analysis

The liquidity metrics collectively exhibit a pattern of strength and stability from 2020 through mid-2023, followed by a marked decline across all ratios starting in the latter half of 2023. The current ratio's sharp decrease suggests a reduction in current assets relative to liabilities, which is echoed by corresponding drops in the quick and cash ratios. Particularly, the cash ratio's steep fall underscores potential cash flow pressures. The consistency of these declines across all liquidity measures near the end of the period signals a possible tightening of short-term financial flexibility.

Current Assets

Current assets demonstrated a consistent upward trend over the reported periods, starting from approximately $145.5 million in mid-2020 and reaching around $530.5 million by mid-2024. Notably, the growth accelerated from early 2022 onward, with substantial increases each quarter, indicating enhanced liquidity or expansion in resources available in the short term.

Current Liabilities

Current liabilities showed a general rise from about $57.2 million in mid-2020 to approximately $299.8 million in mid-2024. There was some volatility, with liabilities peaking noticeably at nearly $303 million in late 2023 before stabilizing slightly. The increase was especially sharp in the last two years, suggesting increased obligations or short-term debt increments.

Current Ratio

The current ratio, measuring short-term liquidity by comparing current assets to current liabilities, fluctuated throughout the periods. Initially, it declined steadily from 2.54 in mid-2020 to a low of 2.2 by mid-2021. This ratio then improved significantly, peaking at 3.51 in mid-2022, which indicates a strong ability to cover short-term liabilities during that interval.

However, from late 2022 through mid-2024, the current ratio showed a downward trend, falling to around 1.77. This decline reflects a growth in current liabilities outpacing the growth in current assets, which may point to a tightening in short-term liquidity or increased reliance on short-term financing.

Overall Analysis

The data reveals expanding operational scale, as evidenced by the growing current assets and liabilities. While the company maintained a healthy liquidity position initially, indicated by current ratios consistently above 2, the last year shows a reduction in the margin of safety, with the ratio dipping below 2. This may warrant closer monitoring of the company’s ability to meet its short-term obligations without financial strain.

The sharp increases in current liabilities suggest possible increased financing needs or operational demands. Meanwhile, the strong asset growth suggests good asset accumulation or inventory buildup. The observed trends imply a strategic shift or changing financial dynamics in recent periods, potentially reflecting business growth or altered working capital management.

Total Quick Assets

The total quick assets exhibited a fluctuating but generally upward trend from June 2020 through June 2024. Starting at approximately $84 million in mid-2020, the value increased steadily, peaking around $254 million in late 2023 before experiencing a slight decline and then rising again to about $265 million by mid-2024. This growth indicates an overall increase in liquid assets available for immediate obligations over the analyzed period, with some periods of consolidation and pullbacks.

Current Liabilities

Current liabilities showed variability, generally rising over time with notable spikes. Initially around $57 million in mid-2020, liabilities increased gradually, then surged sharply from approximately $153 million in late 2023 to nearly $303 million by mid-2024. This rapid increase in liabilities during the last year analyzed suggests a significant rise in short-term obligations, which could impact liquidity if not matched by matching asset growth.

Quick Ratio

The quick ratio reflected changing liquidity conditions over the review period. Initially above 1.4, it decreased to near 1.2 by the end of 2020, then recovered moderately, reaching values above 2.0 in mid-2022 and mid-2023, indicating strong short-term liquidity during those times. However, the ratio declined sharply in 2024, dropping below 1.0 by June 2024, signaling a weakening liquidity position where current liabilities exceed the most liquid assets.

Overall Insights

The data reveals a company with increasing liquid assets and rising current liabilities over the period. While the liquidity position strengthened temporarily around 2022 and early 2023, as evidenced by a higher quick ratio, the last year shows increasing short-term financial pressure due to the sharp rise in liabilities outpacing liquid assets. This trend warrants attention to liquidity management and potential refinancing or operational adjustments to sustain financial stability.

The analysis of the quarterly financial data reveals distinct trends in cash assets, current liabilities, and liquidity as measured by the cash ratio.

Total Cash Assets

Total cash assets exhibited notable fluctuations over the period. Starting at approximately $54.2 million, a decline was observed through the end of 2020, reaching a low near $35.4 million. Subsequently, cash balances generally increased significantly, peaking at around $167.8 million by September 2023. However, a sharp decline occurred after this peak, dropping to approximately $72.7 million by December 2023, before slightly recovering to around $109.0 million by mid-2024.

Current Liabilities

Current liabilities showed a generally upward trajectory, beginning close to $57.2 million and more than quintupling to approximately $299.8 million by mid-2024. The increase was gradual until early 2023, after which liabilities surged markedly, particularly between September 2023 and December 2023, doubling from approximately $152.4 million to $302.9 million. This elevated level of liabilities persisted through the subsequent quarters.

Cash Ratio

The cash ratio, an indicator of liquidity calculated by cash assets divided by current liabilities, reflected these underlying changes. Initially near parity at 0.95, the ratio declined below 0.60 during many periods of 2020 and 2021, indicating a lower ability to cover short-term obligations with cash. From mid-2022 through most of 2023, the ratio improved substantially, peaking at 1.3, signifying strong liquidity. However, in the most recent quarters, the ratio plunged sharply to around 0.24–0.36, suggesting a material deterioration in short-term financial flexibility despite some recovery in cash assets. This decline correlates with the sharp increase in current liabilities.

In summary, the company experienced periods of both strengthening and weakening liquidity conditions. Cash reserves were replenished significantly during 2021–2023, but a recent spike in liabilities has outpaced cash growth, leading to reduced liquidity ratios by mid-2024. These trends indicate increased short-term financial pressure, meriting close monitoring of working capital management going forward.