Diamondback Energy Inc. (NASDAQ:FANG)

The analysis of the quarterly liquidity ratios reveals varying trends over the observed periods.

Current Ratio

The current ratio fluctuated significantly across quarters, starting at a low 0.53 in March 2018 and peaking at 1.1 in September 2018. Following this peak, it generally declined toward the end of 2018 but remained below one for multiple quarters, indicating potential challenges in covering short-term liabilities. In 2020, it briefly rose to 0.95 but again fell below 0.5 in September and December before gradually improving in 2021, achieving a high of 1.01 in December 2021. The ratio then decreased in subsequent quarters, settling around the 0.6 to 0.7 range by late 2022. Overall, the current ratio indicates periods of low liquidity interspersed with brief improvements.

Quick Ratio

The quick ratio shows a similar pattern to the current ratio but with generally lower values. It started at 0.51 in early 2018, rose sharply to 1.07 by September 2018, and then decreased substantially by the end of that year. It remained mostly below 0.6 through 2019 and 2020, reaching its lowest points in mid to late 2020 around 0.32. Improvement was observed in 2021 with the ratio reaching 0.93 in December 2021, not quite matching the earlier peak but indicating enhanced liquidity. However, the quick ratio declined again toward the end of 2022, indicating reduced ability to cover immediate liabilities without selling inventory.

Cash Ratio

The cash ratio exhibited the lowest values among the three metrics throughout the timeline, reflecting limited cash and cash equivalents relative to current liabilities. Initial values were minimal, with some peaks such as 0.7 in September 2018 but mostly remaining below 0.3. A notable increase occurred in late 2021, reaching a peak of 0.47 in December 2021, followed by a sharp decline to as low as 0.02 by late 2022. This downward trend toward the end of the period may indicate more constrained cash liquidity despite earlier transient improvements.

Summarizing, liquidity ratios demonstrate heightened volatility with intermittent improvements primarily in late 2018 and late 2021, with generally constrained short-term liquidity in most quarters. The current and quick ratios suggest limited capacity to meet short-term obligations during several periods, while the consistently low cash ratio highlights cash management challenges. The fluctuations may warrant further exploration into the underlying causes impacting working capital and cash availability.

The quarterly financial data reveals fluctuating trends in the company's liquidity position over the observed periods. A detailed examination of current assets, current liabilities, and the resulting current ratio highlights notable variations reflecting changes in short-term financial stability.

Current Assets

Current assets show significant volatility throughout the periods. Starting at 324 million US dollars in March 2018, current assets increased sharply by the end of 2018, reaching as high as 925 million US dollars in December 2018. However, in 2019, the levels remained relatively stable but slightly declined in the latter half. The most substantial peak appears in March 2020 with 1,268 million US dollars, followed by conspicuous decreases, especially in the middle of 2020 where they fell to 558 million US dollars. Thereafter, a recovery trend begins in 2021, reaching values over 1,400 million US dollars by September 2021 but subsequently tapering off into 2022, ending near 1,031 million US dollars in September 2022.

Current Liabilities

Current liabilities generally trended upwards over the time frame. Initial values of 608 million US dollars in March 2018 rose consistently to over 1,200 million US dollars by the end of 2019. In 2020, liabilities fluctuated but maintained a high level above 1,000 million US dollars, peaking at 1,236 million US dollars in December 2020. Notably, liabilities spiked again in the first half of 2021, reaching values near 2,000 million US dollars in mid-2021 before somewhat declining and stabilizing around 1,600 to 1,800 million US dollars through mid-2022.

Current Ratio

The current ratio, reflecting the ability to cover short-term obligations, exhibited considerable instability. Early levels hovered below 1, indicating a consistent scenario where current liabilities exceeded current assets, exemplifying potential liquidity concerns. A notable exception occurred in September 2018 when the ratio exceeded 1.1, suggesting a brief period of stronger liquidity. Following this, the ratio declined again, with a general trend below 1 from 2019 through mid-2021. A positive shift appears at the end of 2021, with the ratio surpassing 1 (1.01) in December 2021, indicating improved short-term financial health. However, by 2022, the ratio decreased again, remaining below 1 and reaching 0.61 by September 2022, which implies a reemergence of potential liquidity constraints.

Overall, the data reflects a pattern of fluctuating liquidity with periods of improvement interspersed with more strained financial conditions. The persistent trend of current liabilities exceeding current assets for most periods highlights a challenging short-term liquidity environment, with occasional improvements that were not sustained throughout the observed timeframe.

The analysis of the quarterly financial data reveals notable fluctuations in liquidity and short-term financial stability over the observed periods.

Total Quick Assets

The total quick assets demonstrate considerable variability. From the early period in 2018, there was an initial increase peaking around mid-2019 with values approaching 843 million US dollars. Subsequently, a decrease occurred through the end of 2019 and into 2020, reaching a low of approximately 390 million US dollars by the second quarter of 2020. After this trough, a gradual recovery is evident throughout 2021, with quick assets exceeding 1.3 billion US dollars by the third quarter of 2021. The latter half of the data shows a decline again in 2022, dropping below 1.1 billion US dollars and further nearing 818 million US dollars by the third quarter of 2022.

Current Liabilities

Current liabilities consistently increased from over 600 million US dollars in early 2018 to nearly 2 billion US dollars by mid-2021. After peaking at around 2 billion dollars, liabilities slightly decreased in the last observed quarters of 2021 and 2022, but remained elevated relative to earlier periods, fluctuating between approximately 1.6 and 1.9 billion US dollars.

Quick Ratio

The quick ratio, reflecting the relationship between quick assets and current liabilities, mirrors the trends seen in the other two metrics. Initial ratios hovered around 0.5 in early 2018, briefly increasing above 1.0 in the third quarter of 2018, indicating strong short-term liquidity at that point. However, the ratio sharply declined into 2020, reaching lows near 0.3, signifying strained liquidity conditions. An improvement phase is visible starting in late 2020 into 2021, with the ratio ascending to nearly 0.9 by the end of 2021, indicating enhanced ability to cover current liabilities with quick assets. The ratio declined again in 2022, falling below 0.5 in the last quarter, suggesting a return to more constrained liquidity.

Overall, the data indicates periods of financial stress and recovery in liquidity. The company encountered a dip in quick assets and liquidity ratios around 2020, aligned with increasing current liabilities, which might reflect operational or market challenges during that period. The partial recovery in 2021 shows improved liquidity management or asset growth, yet the decline in 2022 suggests renewed pressures on short-term financial health. Maintaining a quick ratio closer to or above 1.0 is preferable for bolstered short-term solvency, and the observed ratios falling below 0.5 in multiple quarters raise considerations for ongoing liquidity risk.

Total Cash Assets

The total cash assets demonstrate significant fluctuations over the observed periods. Starting at 72 million USD in March 2018, cash assets peaked sharply at 508 million USD in September 2018 before declining to 100 million USD by September 2019. Thereafter, cash holdings displayed intermittent increases, reaching a high of 672 million USD in December 2021. Post this peak, a steep decline occurred, with cash assets dropping to 34 million USD by September 2022. This pattern indicates periods of accumulation followed by substantial cash utilization or reduction.

Current Liabilities

Current liabilities generally exhibited a rising trend throughout the period. Beginning at 608 million USD in March 2018, liabilities steadily increased with a few fluctuations, reaching a maximum of 1996 million USD in September 2021. Following this, a decline occurred to 1438 million USD at the end of 2021, but liabilities rose again in early 2022, ending at 1678 million USD in September 2022. This upward trajectory indicates growing short-term obligations.

Cash Ratio

The cash ratio, which measures liquidity by comparing cash assets to current liabilities, showed high volatility. The ratio climbed to its highest recorded point of 0.7 in September 2018, coinciding with the cash peak. However, for most other periods, the ratio remained below 0.3, often near or below 0.1, evidencing relatively low liquidity compared to short-term liabilities. Notably, after December 2021, the cash ratio experienced a sharp drop from 0.47 to 0.02 by September 2022, reflecting diminished cash reserves relative to increasing liabilities.