Fortinet Inc. (NASDAQ:FTNT)

Current Ratio

The current ratio shows a general declining trend over the five-year period. It started at 1.77 in 2018, slightly increased to 1.88 in 2019, then steadily decreased to 1.5 in 2020, 1.55 in 2021, and further dropped to 1.24 by the end of 2022. This indicates a reduction in the company's ability to cover its short-term liabilities with its short-term assets over time.

Quick Ratio

The quick ratio follows a similar downward pattern as the current ratio. It began at 1.67 in 2018, increased modestly to 1.77 in 2019, and then experienced a decline to 1.4 in 2020. Subsequently, it slightly improved to 1.45 in 2021 before decreasing again to 1.13 in 2022. This trend suggests a decreasing liquidity position when inventory is excluded, indicating potential challenges in meeting short-term obligations promptly.

Cash Ratio

The cash ratio also decreased over the period, starting at 1.31 in 2018 and rising slightly to 1.4 in 2019. From there, it fell more sharply to 1.0 in 2020, then marginally increased to 1.1 in 2021, and dropped notably to 0.72 by 2022. This illustrates a diminishing cushion of actual cash and cash equivalents relative to current liabilities, pointing to a decreasing ability to cover short-term liabilities purely with the most liquid assets.

Overall Analysis

Across all three liquidity ratios, there is a consistent pattern of initial slight improvement between 2018 and 2019, followed by a declining trend through to 2022. The declines in current, quick, and cash ratios indicate a gradual reduction in liquidity and short-term financial health. The most pronounced decrease is observed in the cash ratio, revealing increased reliance on non-cash current assets to meet obligations. This could suggest tightening liquidity conditions and possibly higher short-term financial risk as of the latest period.

The analysis of the financial data reveals several key trends in the company's liquidity and working capital management over the five-year period ending December 31, 2022.

Current Assets

The current assets show an overall increasing trend from US$2,220,900 thousand in 2018 to US$3,810,400 thousand in 2022. This indicates growth in the company’s short-term resources available to meet its obligations. There was a notable rise in 2019, followed by a slight dip in 2020, but the assets steadily increased again through 2021 and 2022.

Current Liabilities

Current liabilities also increased consistently, from US$1,256,400 thousand in 2018 to US$3,078,400 thousand in 2022. The growth in current liabilities outpaces that of current assets, especially in the last two years. This suggests a rising short-term debt or obligations that the company needs to address.

Current Ratio

The current ratio, which measures the company's ability to cover current liabilities with current assets, declined over the period from 1.77 in 2018 to 1.24 in 2022. Despite the growth in current assets, the faster increase in current liabilities has resulted in a weakening liquidity position. The ratio fell particularly sharply between 2021 and 2022, indicating a reduced margin of safety for meeting short-term obligations.

In summary, while the company has expanded its current assets, the faster growth in current liabilities has adversely affected its liquidity ratios. The declining current ratio signals a potential risk in short-term financial stability that may warrant closer attention to working capital management strategies.

Total Quick Assets

The total quick assets showed an overall increasing trend throughout the observed period. Starting at approximately 2.09 billion US dollars in 2018, the value rose to about 2.61 billion in 2019, slightly declined to 2.56 billion in 2020, then increased significantly to 3.36 billion in 2021, and continued to grow to 3.47 billion in 2022. This indicates a general strengthening in liquid assets, despite a minor dip in 2020.

Current Liabilities

Current liabilities displayed a consistent upward trend over the years. They increased from roughly 1.26 billion US dollars in 2018 to nearly 1.47 billion in 2019, then to 1.83 billion in 2020, followed by 2.32 billion in 2021, and further to around 3.08 billion in 2022. This growth in liabilities suggests an expanding short-term financial obligation burden, with an acceleration in increases notably after 2020.

Quick Ratio

The quick ratio experienced fluctuations with a downward trend. It started at 1.67 in 2018, improved slightly to 1.77 in 2019, then declined considerably to 1.4 in 2020, showing some recovery to 1.45 in 2021, but dropped further to 1.13 in 2022. The decreasing quick ratio over time reflects a relative decline in liquid asset coverage against current liabilities, indicating a potential weakening in immediate liquidity position despite the rise in quick assets.

Total Cash Assets

There was an overall upward trend in total cash assets from 2018 to 2021, increasing from approximately 1.65 billion to 2.55 billion US dollars. However, in 2022, a noticeable decline occurred, with cash assets decreasing to around 2.21 billion. This reflects a peak in cash reserves in 2021 followed by a reduction in the subsequent year.

Current Liabilities

Current liabilities exhibited a consistent and significant increase over the entire period. Starting from about 1.26 billion in 2018, liabilities rose steadily each year, culminating in approximately 3.08 billion by the end of 2022. This suggests growing short-term obligations and possibly increased operational or financial commitments.

Cash Ratio

The cash ratio, which measures liquidity by comparing cash assets to current liabilities, displayed a decline over the years. Initially, it rose slightly from 1.31 in 2018 to 1.4 in 2019, indicating strong liquidity. However, it then dropped to 1.0 in 2020, increased marginally to 1.1 in 2021, and sharply decreased to 0.72 in 2022. The ratio falling below 1 in the most recent year implies that cash assets were insufficient to cover current liabilities fully, highlighting a weakening liquidity position.

Overall Analysis

The financial data reveals that while cash assets increased until 2021, the rate of growth in current liabilities outpaced this increase, leading to a reduced cash ratio. The significant rise in liabilities combined with the drop in liquidity ratio in 2022 suggests potential challenges in short-term financial stability. The decline in cash assets during 2022 coupled with increasing liabilities may require attention to ensure adequate liquidity management going forward.