Applied Materials Inc. (NASDAQ:AMAT)

The analysis of liquidity ratios over the given annual periods reveals notable trends and fluctuations in the company's short-term financial health.

Current Ratio

The current ratio demonstrates a generally declining trend from 3.00 in 2020 to a low of 2.16 in 2022, followed by a recovery phase reaching 2.61 in 2025. This suggests the company experienced a reduction in current assets relative to current liabilities until 2022, but then improved its ability to cover short-term obligations in subsequent years, stabilizing above 2.5 by 2025.

Quick Ratio

The quick ratio shows a similar pattern, beginning at 1.95 in 2020 and decreasing significantly to 1.17 in 2022. Afterward, it increased again, reaching 1.74 in 2024 and slightly declining to 1.72 in 2025. The decline until 2022 indicates a reduced level of liquid assets available to meet immediate liabilities, including inventory adjustments or changes in receivables. The gradual improvement post-2022 suggests an effort to enhance liquidity excluding inventory.

Cash Ratio

The cash ratio exhibits the most volatility among the liquidity ratios. Starting at a robust 1.29 in 2020, it dropped sharply to 0.35 by 2022, indicating a significant decrease in cash and cash equivalents relative to current liabilities. Subsequently, the ratio increased to 1.12 in 2024 and slightly decreased to 1.07 in 2025. This pattern suggests a pronounced dip in immediate cash reserves during the middle period, followed by a recovery phase enhancing the capacity to cover current liabilities solely with cash or cash equivalents.

Overall, all three liquidity metrics decline sharply over the first three years, with the lowest points consistently occurring in 2022. Following this period, the ratios improve, indicating strengthened liquidity and better short-term financial management towards 2025. The recovery in liquidity ratios points to a possible strategic focus on balancing current assets and liabilities, improving cash holdings, and maintaining sufficient liquid resources to meet short-term obligations. Despite the fluctuations, the company maintains a healthy liquidity position above 1.0 for all ratios by 2025, reflecting adequate coverage of current liabilities.

The analysis of the financial data over the six-year period indicates several notable trends in the company's liquidity position.

Current Assets

Current assets have demonstrated an overall upward trend from 13,369 million US dollars in 2020 to a peak of 21,220 million US dollars in 2024, followed by a slight decrease to 20,881 million US dollars in 2025. This growth suggests expanding liquid resources and assets expected to be converted into cash within a year.

Current Liabilities

Current liabilities have also increased during the same period, rising from 4,459 million US dollars in 2020 to 8,468 million US dollars in 2024. Similar to current assets, there is a small decline to 7,999 million US dollars in 2025. The increase in current liabilities indicates growing short-term obligations.

Current Ratio

The current ratio, which measures the ability to meet short-term obligations with current assets, shows a fluctuating but overall stable liquidity position. It decreased from a high of 3.00 in 2020 to 2.16 in 2022, indicating lower coverage of liabilities by assets during that time. However, it subsequently improved to 2.60 in 2023 and stabilized around 2.5 to 2.6 in 2024 and 2025. These ratios remain comfortably above 2, signaling a strong liquidity position throughout the period.

In summary, the company’s current assets and liabilities have both increased over the years, reflecting growth in the scale of operations and short-term financial commitments. Despite fluctuations, the current ratio maintains a level that suggests a robust ability to cover short-term obligations. The slight decreases observed in 2025 may warrant monitoring to ensure sustained liquidity strength going forward.

Trends in Total Quick Assets

The total quick assets showed an overall increasing trend from 2020 to 2025, starting at 8,701 million US dollars in 2020, rising to a peak of 14,705 million US dollars in 2024, before experiencing a slight decrease to 13,758 million US dollars in 2025. This indicates a general strengthening of liquid assets available over the period, with a notable increase between 2021 and 2024.

Trends in Current Liabilities

Current liabilities increased from 4,459 million US dollars in 2020 to a high of 8,468 million US dollars in 2024, followed by a marginal decline to 7,999 million US dollars in 2025. This reflects a rising short-term obligation burden over the years, with a leveling off towards the end of the period.

Analysis of Quick Ratio

The quick ratio started at a strong level of 1.95 in 2020, indicating a comfortable coverage of current liabilities by liquid assets. It then declined sharply to 1.17 in 2022, suggesting reduced short-term liquidity at that point. However, the ratio improved again by 2023 and stabilized around 1.7 in both 2024 and 2025. This pattern reveals initial weakening of liquidity followed by recovery and sustained quick asset coverage over liabilities in recent years.

Overall Insights

The data shows dynamic movement in liquidity and short-term obligations. Total quick assets witnessed substantial growth overall, although current liabilities also increased significantly, which impacted the quick ratio notably in the 2021-2022 period. The subsequent improvement and maintenance of the quick ratio above 1.6 in the later years indicate enhanced liquidity management and a relatively balanced short-term financial position by 2024 and 2025. The minor decrease in total quick assets and current liabilities in the final year suggests minor adjustments in asset and liability management possibly aimed at optimization or response to market conditions.

Total Cash Assets

The total cash assets exhibited fluctuations over the analyzed periods. Initially, there was a decline from 5,738 million USD in 2020 to 2,581 million USD in 2022. Following this trough, a notable recovery occurred, reaching a peak of 9,471 million USD in 2024 before slightly decreasing to 8,573 million USD in 2025. This pattern suggests periods of significant cash reserve drawdown followed by strong replenishment.

Current Liabilities

Current liabilities demonstrated a consistent upward trend from 4,459 million USD in 2020 to 8,468 million USD in 2024, indicating increased short-term obligations. In 2025, there was a slight reduction to 7,999 million USD, suggesting some stabilization or possible repayments.

Cash Ratio

The cash ratio declined from a strong position of 1.29 in 2020 to a low of 0.35 in 2022, reflecting a reduced ability to cover current liabilities with cash assets alone. From 2022 onwards, the ratio improved steadily, reaching 1.12 in 2024 and slightly decreasing to 1.07 in 2025. This recovery indicates an improving liquidity position and enhanced capacity to meet short-term obligations with available cash.

Overall Insights

Examining the trends across all items reveals a correlation between fluctuations in cash assets and the cash ratio, both displaying a dip in 2022 with a subsequent recovery in later years. The consistent rise in current liabilities over most periods suggests increasing short-term financial commitments. However, the improvements in the cash ratio alongside increased cash reserves in 2024 and 2025 reflect effective management to maintain liquidity. The minor decline in cash ratio in 2025, despite high cash assets, may warrant further monitoring to ensure continued liquidity strength.