Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
Automatic Data Processing Inc., liquidity ratios
Based on: 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30).
The liquidity profile remains remarkably stable across the observed six-year period from June 2016 to June 2021. All three liquidity metrics consistently hover near the 1.0 threshold, indicating a disciplined approach to managing short-term obligations and a consistent ability to cover current liabilities with liquid assets.
- Current Ratio
- The current ratio exhibited a slight downward adjustment from 1.10 in 2016 and 2017 to a plateau of 1.05 between 2018 and 2020. A marginal recovery is noted in 2021, with the ratio increasing to 1.07. The stability of this metric suggests a consistent relationship between current assets and current liabilities.
- Quick Ratio
- The quick ratio followed a pattern nearly identical to the current ratio, starting at 1.08 in 2016 and reaching a low of 1.03 in 2018 and 2020, before rising to 1.06 in 2021. The negligible difference between the current and quick ratios implies that inventories represent an insignificant portion of the company's current asset base.
- Cash Ratio
- The cash ratio experienced a gradual decline from 1.03 in 2016 to a low of 0.95 in 2020, followed by a slight increase to 0.98 in 2021. Although the ratio dipped below 1.0 after 2017, the values remain high, indicating that cash and cash equivalents alone cover the vast majority of short-term liabilities.
Overall, the narrow range of fluctuation across these three ratios reflects a low-volatility liquidity strategy. The slight recovery observed in 2021 across all metrics suggests a strengthening of the immediate liquidity position at the end of the analyzed period.
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Current Ratio
Automatic Data Processing Inc., current ratio calculation, comparison to benchmarks
| Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2017 | Jun 30, 2016 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Current assets | 40,741,800) | 31,564,100) | 34,342,300) | 32,050,000) | 32,658,700) | 39,500,400) | |
| Current liabilities | 38,094,800) | 30,126,600) | 32,627,700) | 30,413,600) | 29,815,900) | 35,847,400) | |
| Liquidity Ratio | |||||||
| Current ratio1 | 1.07 | 1.05 | 1.05 | 1.05 | 1.10 | 1.10 | |
| Benchmarks | |||||||
| Current Ratio, Competitors2 | |||||||
| Accenture PLC | 1.25 | 1.40 | — | — | — | — | |
| Adobe Inc. | 1.25 | 1.48 | — | — | — | — | |
| AppLovin Corp. | 5.05 | — | — | — | — | — | |
| Cadence Design Systems Inc. | 1.77 | — | — | — | — | — | |
| Datadog Inc. | 3.54 | — | — | — | — | — | |
| International Business Machines Corp. | 0.88 | — | — | — | — | — | |
| Intuit Inc. | 1.94 | — | — | — | — | — | |
| Microsoft Corp. | 2.08 | — | — | — | — | — | |
| Oracle Corp. | 2.30 | — | — | — | — | — | |
| Palantir Technologies Inc. | 4.34 | — | — | — | — | — | |
| Palo Alto Networks Inc. | 0.91 | — | — | — | — | — | |
| Salesforce Inc. | 1.23 | — | — | — | — | — | |
| ServiceNow Inc. | 1.05 | — | — | — | — | — | |
| Synopsys Inc. | 1.16 | 1.19 | — | — | — | — | |
| Workday Inc. | 1.12 | — | — | — | — | — | |
| Current Ratio, Sector | |||||||
| Software & Services | 1.68 | — | — | — | — | — | |
| Current Ratio, Industry | |||||||
| Information Technology | 1.55 | — | — | — | — | — | |
Based on: 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30).
1 2021 Calculation
Current ratio = Current assets ÷ Current liabilities
= 40,741,800 ÷ 38,094,800 = 1.07
2 Click competitor name to see calculations.
An evaluation of the liquidity profile from 2016 to 2021 indicates a highly consistent approach to managing short-term obligations. Despite significant fluctuations in the absolute scale of current accounts, a stable margin of liquidity was maintained throughout the observed period.
- Current Asset Trends
- Current assets exhibited volatility, starting at $39.5 billion in 2016 and declining to $31.6 billion by 2020. A significant increase occurred in 2021, with assets reaching a period high of $40.7 billion.
- Current Liability Trends
- Current liabilities followed a trajectory closely aligned with asset movements. Obligations decreased from $35.8 billion in 2016 to $29.8 billion in 2017, subsequently rising to $38.1 billion by the end of the analysis period in 2021.
- Current Ratio Analysis
- The current ratio remained constrained within a narrow band, ranging from 1.10 in 2016 and 2017 to a low of 1.05 between 2018 and 2020. The ratio concluded the period at 1.07 in 2021. This stability indicates that current assets were consistently maintained at a level slightly above current liabilities, ensuring that short-term obligations could be met without significant liquidity stress.
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Quick Ratio
Automatic Data Processing Inc., quick ratio calculation, comparison to benchmarks
| Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2017 | Jun 30, 2016 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Cash and cash equivalents | 2,575,200) | 1,908,500) | 1,949,200) | 2,170,000) | 2,780,400) | 3,191,100) | |
| Accounts receivable, net of allowance for doubtful accounts | 2,727,400) | 2,441,300) | 2,439,300) | 1,984,200) | 1,703,600) | 1,742,800) | |
| Funds held for clients | 34,905,800) | 26,708,100) | 29,434,200) | 27,137,800) | 27,291,500) | 33,841,200) | |
| Total quick assets | 40,208,400) | 31,057,900) | 33,822,700) | 31,292,000) | 31,775,500) | 38,775,100) | |
| Current liabilities | 38,094,800) | 30,126,600) | 32,627,700) | 30,413,600) | 29,815,900) | 35,847,400) | |
| Liquidity Ratio | |||||||
| Quick ratio1 | 1.06 | 1.03 | 1.04 | 1.03 | 1.07 | 1.08 | |
| Benchmarks | |||||||
| Quick Ratio, Competitors2 | |||||||
| Accenture PLC | 1.14 | 1.29 | — | — | — | — | |
| Adobe Inc. | 1.11 | 1.34 | — | — | — | — | |
| AppLovin Corp. | 4.82 | — | — | — | — | — | |
| Cadence Design Systems Inc. | 1.47 | — | — | — | — | — | |
| Datadog Inc. | 3.45 | — | — | — | — | — | |
| International Business Machines Corp. | 0.69 | — | — | — | — | — | |
| Intuit Inc. | 1.65 | — | — | — | — | — | |
| Microsoft Corp. | 1.90 | — | — | — | — | — | |
| Oracle Corp. | 2.15 | — | — | — | — | — | |
| Palantir Technologies Inc. | 4.11 | — | — | — | — | — | |
| Palo Alto Networks Inc. | 0.88 | — | — | — | — | — | |
| Salesforce Inc. | 1.11 | — | — | — | — | — | |
| ServiceNow Inc. | 1.01 | — | — | — | — | — | |
| Synopsys Inc. | 0.89 | 0.94 | — | — | — | — | |
| Workday Inc. | 1.07 | — | — | — | — | — | |
| Quick Ratio, Sector | |||||||
| Software & Services | 1.52 | — | — | — | — | — | |
| Quick Ratio, Industry | |||||||
| Information Technology | 1.30 | — | — | — | — | — | |
Based on: 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30).
1 2021 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 40,208,400 ÷ 38,094,800 = 1.06
2 Click competitor name to see calculations.
The liquidity position of the organization demonstrates remarkable stability over the six-year period from 2016 to 2021. Despite fluctuations in the absolute volumes of quick assets and current liabilities, the capacity to meet short-term obligations using the most liquid assets remained consistent, with the quick ratio consistently maintaining a value above 1.00.
- Quick Ratio Trend Analysis
- The quick ratio exhibited minimal variance, peaking at 1.08 in 2016 and reaching a low of 1.03 in 2018 and 2020. The narrow range of fluctuation suggests a disciplined approach to liquidity management, ensuring that liquid assets are closely aligned with current liability requirements.
- Quick Asset Volatility
- Total quick assets experienced a period of decline between 2016 and 2018, dropping from approximately 38.8 billion USD to 31.3 billion USD. Following a brief recovery in 2019 and a slight dip in 2020, a significant increase was recorded in 2021, where assets rose to 40.2 billion USD, the highest level in the analyzed period.
- Current Liabilities Behavior
- Current liabilities mirrored the movement of quick assets closely. A notable decrease occurred in 2017, followed by a gradual increase through 2019. Similar to the asset trend, 2021 saw a sharp escalation in liabilities to 38.1 billion USD. The synchronized movement between assets and liabilities explains the stability of the resulting ratio.
- Liquidity Correlation
- The correlation between quick assets and current liabilities remained tight throughout the period. Even during the significant scaling of the balance sheet in 2021, the quick ratio adjusted to 1.06, indicating that the increase in obligations was sufficiently offset by a proportional increase in highly liquid resources.
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Cash Ratio
Automatic Data Processing Inc., cash ratio calculation, comparison to benchmarks
| Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2017 | Jun 30, 2016 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Cash and cash equivalents | 2,575,200) | 1,908,500) | 1,949,200) | 2,170,000) | 2,780,400) | 3,191,100) | |
| Funds held for clients | 34,905,800) | 26,708,100) | 29,434,200) | 27,137,800) | 27,291,500) | 33,841,200) | |
| Total cash assets | 37,481,000) | 28,616,600) | 31,383,400) | 29,307,800) | 30,071,900) | 37,032,300) | |
| Current liabilities | 38,094,800) | 30,126,600) | 32,627,700) | 30,413,600) | 29,815,900) | 35,847,400) | |
| Liquidity Ratio | |||||||
| Cash ratio1 | 0.98 | 0.95 | 0.96 | 0.96 | 1.01 | 1.03 | |
| Benchmarks | |||||||
| Cash Ratio, Competitors2 | |||||||
| Accenture PLC | 0.52 | 0.67 | — | — | — | — | |
| Adobe Inc. | 0.84 | 1.09 | — | — | — | — | |
| AppLovin Corp. | 4.02 | — | — | — | — | — | |
| Cadence Design Systems Inc. | 1.13 | — | — | — | — | — | |
| Datadog Inc. | 2.94 | — | — | — | — | — | |
| International Business Machines Corp. | 0.22 | — | — | — | — | — | |
| Intuit Inc. | 1.46 | — | — | — | — | — | |
| Microsoft Corp. | 1.47 | — | — | — | — | — | |
| Oracle Corp. | 1.93 | — | — | — | — | — | |
| Palantir Technologies Inc. | 3.83 | — | — | — | — | — | |
| Palo Alto Networks Inc. | 0.57 | — | — | — | — | — | |
| Salesforce Inc. | 0.67 | — | — | — | — | — | |
| ServiceNow Inc. | 0.67 | — | — | — | — | — | |
| Synopsys Inc. | 0.65 | 0.58 | — | — | — | — | |
| Workday Inc. | 0.83 | — | — | — | — | — | |
| Cash Ratio, Sector | |||||||
| Software & Services | 1.12 | — | — | — | — | — | |
| Cash Ratio, Industry | |||||||
| Information Technology | 0.89 | — | — | — | — | — | |
Based on: 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30), 10-K (reporting date: 2016-06-30).
1 2021 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 37,481,000 ÷ 38,094,800 = 0.98
2 Click competitor name to see calculations.
The analysis of the cash ratio from June 30, 2016, to June 30, 2021, reveals a period of relative stability with a slight downward trajectory followed by a modest recovery. The cash ratio, which measures the ability to cover current liabilities using only cash and cash equivalents, remained near a parity of 1.0 throughout the observed period, indicating a consistent strategy regarding immediate liquidity.
- Cash Ratio Trend Analysis
- A gradual decline in the cash ratio is observed from 1.03 in 2016 to a low of 0.95 in 2020. This contraction suggests a slight decrease in the proportion of cash assets relative to short-term obligations over those four years. However, a reversal occurred by June 30, 2021, as the ratio increased to 0.98, signaling a return toward the levels seen in previous years.
- Cash Asset Fluctuations
- Total cash assets exhibited significant volatility. After starting at 37.03 billion US dollars in 2016, assets declined to a low of 28.62 billion US dollars by 2020. This trend was sharply reversed in 2021, with cash assets increasing to 37.48 billion US dollars, the highest level in the six-year period.
- Current Liabilities Correlation
- Current liabilities generally mirrored the movements of cash assets. Liabilities decreased from 35.85 billion US dollars in 2016 to 29.82 billion US dollars in 2017, before fluctuating and eventually rising to 38.09 billion US dollars in 2021. The simultaneous increase in both cash assets and current liabilities in the final year explains why the cash ratio remained below 1.0 despite the substantial increase in available cash.
- Liquidity Position Insights
- The maintenance of a cash ratio consistently between 0.95 and 1.03 suggests a highly disciplined liquidity management approach. The company maintains nearly enough cash on hand to settle all current liabilities instantaneously, representing a conservative liquidity posture that minimizes reliance on the sale of other current assets or external financing to meet short-term debts.
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