Cadence Design Systems Inc. (NASDAQ:CDNS)

Current Ratio Trends

The current ratio exhibits fluctuations over the observed periods. Starting at 1.38 in March 2020, it generally increased, peaking at 1.86 by the end of 2020. After a decline and some volatility during 2022 and early 2023, it showed stabilization around the mid-1.3 to 1.4 range. Notably, beginning in early 2024, the ratio experienced a significant upward trend, rising sharply to 3.07 by March 2025, indicating improved short-term liquidity and an enhanced ability to cover current liabilities with current assets.

Quick Ratio Observations

The quick ratio, which excludes inventories from current assets, closely mirrors the movements seen in the current ratio but remains consistently lower. It rose progressively from 1.22 in March 2020 to a peak of 1.59 at the end of 2020 before experiencing a decline through 2022 and early 2023, reaching lows near 1.0. Subsequent quarters showed slight recovery. Similar to the current ratio, the quick ratio underwent a notable surge starting in the first quarter of 2024, climbing to 2.58 by March 2025, suggesting a stronger liquid asset position excluding inventories.

Cash Ratio Analysis

The cash ratio, representing the company's cash and cash equivalents relative to current liabilities, showed less volatility than the other ratios but remained lower in absolute terms. It increased from 0.93 in March 2020 to a stable range around 1.12 by the end of 2021. Following this period, the ratio decreased gradually, reaching a low of 0.63 in December 2023, which indicates reduced immediate cash coverage for liabilities during that timeframe. From early 2024 onward, a marked improvement is evident, with the ratio climbing steadily to 2.14 by March 2025, signaling a substantial increase in cash reserves relative to short-term obligations.

General Insights

All three liquidity ratios demonstrate a general trend of strengthening liquidity from early 2024 forward. The sharp increases in the current, quick, and cash ratios during the 2024 and early 2025 quarters suggest a strategic build-up of available assets or a reduction in current liabilities to improve short-term financial stability. Prior to this period, liquidity measures were more variable, with peak values around the end of 2020 and a period of softness through 2022 and parts of 2023. The more recent upward trend may indicate improved cash management or operational performance supporting a stronger liquidity profile.

The analysis of the quarterly financial data reveals evolving trends in the liquidity position over the observed periods. Current assets exhibit a general upward movement, starting from approximately 1.40 billion US dollars in early 2020 and reaching nearly 4.00 billion US dollars by the first quarter of 2025. This progression indicates a significant accumulation of liquid assets or assets expected to be converted to cash within a year.

Current liabilities display greater variability in comparison to current assets. Initially, liabilities are near 1.01 billion US dollars in March 2020, fluctuating modestly through 2021 but showing a notable increase at the end of 2023, peaking above 1.59 billion US dollars in December 2023. Thereafter, there is a decline towards 1.30 billion US dollars by the end of the first quarter in 2025. This suggests periods of both increased short-term obligations and subsequent reduction, possibly due to debt repayments or better management of payables.

The current ratio, a key liquidity metric, echoes these movements with a marked upward trajectory in later periods. Starting from 1.38 in March 2020, the ratio fluctuates modestly within the 1.3 to 1.8 range for the initial years, reflecting moderate liquidity. However, from late 2023 onwards, the ratio rises sharply, reaching a value above 3.0 by March 2025. This sharp increase suggests significantly improved short-term financial health, with current assets more than tripling current liabilities by that point. Such a high current ratio may indicate strong buffer capacity to cover short-term obligations but also may reflect accumulation of working capital or potential inefficiencies in asset utilization.

Overall, the observed data suggests a strengthening liquidity position over time, driven by a consistent increase in current assets and managed fluctuation in current liabilities. The trend towards a high current ratio in the most recent quarters points to enhanced solvency but warrants attention to the efficiency of asset deployment and potential implications for operational efficiency.

The financial data reveals several notable trends relating to liquidity and short-term obligations over the observed quarters.

Total Quick Assets

The total quick assets have generally shown an upward trajectory, beginning at approximately 1.23 billion USD in March 2020. After some fluctuations, this figure peaks significantly towards the end of the dataset, reaching over 3.35 billion USD by March 2025. This indicates an overall strengthening in liquid asset holdings over time, despite some interim periods of decline particularly noticeable between early 2022 and early 2023.

Current Liabilities

Current liabilities demonstrate variability throughout the quarters but maintain values mostly between 0.8 billion and 1.6 billion USD. Initially rising from about 1.01 billion USD in March 2020, liabilities peak around 1.59 billion USD in December 2023 before gradually declining toward approximately 1.3 billion USD by March 2025. This pattern suggests some periods of increased short-term debt followed by a reduction in more recent quarters.

Quick Ratio

The quick ratio exhibits a general increase over the period, reflecting improved liquidity relative to current liabilities. Starting at 1.22 in March 2020, it rises to reach a notable peak of 2.58 by March 2025. This upward trend is characterized by fluctuations, including a peak near 1.59 in December 2020, a dip toward 0.94 in December 2023, and a subsequent recovery to exceed 2.0 in the final observed quarters. The higher quick ratio indicates an improved ability to cover short-term liabilities with liquid assets, enhancing financial stability.

In summary, the company appears to strengthen its liquidity position over time, increasing quick assets significantly while managing current liabilities to lower levels in the final period. The quick ratio's upward trend corroborates this, highlighting an improved cushion against short-term financial obligations. However, the interim fluctuations suggest some variability in working capital management or cash flow dynamics during the observed years.

Total cash assets

The total cash assets exhibit a fluctuating pattern over the observed periods. Initially, there is an increase from 946 million to approximately 1.31 billion US dollars between March and September 2020. This is followed by a noticeable decline in December 2020 to around 928 million, with further decreases continuing into the first quarter of 2021, reaching a low near 743 million. From that point, a recovery trend emerges, with cash assets steadily increasing to just over 1 billion by the end of 2021. Throughout 2022, cash assets demonstrate a general downward trajectory, falling from approximately 1.13 billion in April to about 882 million in December. Early 2023 shows modest increases, culminating in around 1.01 billion by the end of the year. From March 2024 onward, a significant surge occurs, with cash assets jumping to 2.79 billion by September 2024, before slightly decreasing to 2.78 billion in March 2025.

Current liabilities

Current liabilities show considerable variation throughout the timeframe. Initially, the liabilities remain above 1 billion US dollars from March to June 2020, peaking at approximately 1.15 billion. A sharp decline occurs by December 2020 to around 797 million, followed by a relatively stable period fluctuating near 900 million to just under 1 billion until mid-2022. However, the latter half of 2022 marks a rising trend in liabilities, reaching a peak of roughly 1.35 billion in December. Early 2023 sees a slight reduction in liabilities, stabilizing near 1.18 billion to 1.26 billion through the end of the year. Entering 2024, current liabilities increase sharply, peaking at around 1.67 billion in December 2024, before decreasing to 1.30 billion by March 2025.

Cash ratio

The cash ratio fluctuates considerably during the periods analyzed. It starts just below 1 (0.93) in March 2020, improving steadily to reach 1.17 by September and December 2020, indicating a strong liquidity position relative to short-term obligations during that period. The ratio then declines to below 1, ranging between 0.63 and 0.94 from the first quarter of 2021 through the end of 2023. Notably, the lowest point occurs in December 2023 at 0.63. Starting in early 2024, there is a significant rise in the cash ratio, reaching 1.66 by December 2024 and further increasing to 2.14 by March 2025. This suggests a substantial improvement in the company's ability to cover its current liabilities with cash and cash equivalents towards the end of the period.

Overall observations

The data reveal cycles of liquidity and liability management with notable shifts in the company's cash position and obligations. Both total cash assets and current liabilities demonstrate periods of increase and decrease, but the sharp increase in cash assets and the concomitant rise in the cash ratio starting in early 2024 highlight a significant enhancement in liquidity. Meanwhile, current liabilities also peaked around the same period but decreased subsequently, improving the company's short-term financial stability as indicated by the rising cash ratio. The trends imply active management of working capital and a focus on maintaining sufficient liquidity to meet obligations, especially evident in the latest reporting periods.