Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
3M Co., liquidity ratios
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Current ratio | 1.70 | 1.89 | 1.41 | 1.89 | 1.86 | |
| Quick ratio | 1.04 | 1.23 | 0.79 | 1.14 | 1.18 | |
| Cash ratio | 0.53 | 0.63 | 0.27 | 0.45 | 0.54 |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The analysis focuses on liquidity ratios over a five-year period. All three ratios—current ratio, quick ratio, and cash ratio—display fluctuations indicative of changing short-term financial stability and liquidity management.
- Current Ratio
- The current ratio shows variability across the years, starting at 1.86 in 2017 and remaining relatively stable at 1.89 in 2018. It then declined notably to 1.41 in 2019, suggesting a reduction in the company's ability to cover current liabilities with current assets. However, it rebounded to 1.89 in 2020, returning to previous levels, before falling slightly to 1.7 in 2021. Overall, the ratio stayed above 1, indicating ongoing coverage of short-term obligations but with some volatility.
- Quick Ratio
- The quick ratio follows a somewhat similar pattern but with more pronounced variation. Beginning at 1.18 in 2017, it marginally decreased to 1.14 in 2018. A significant drop to 0.79 occurred in 2019, indicating lower liquid assets excluding inventory to cover current liabilities. The ratio then improved markedly to 1.23 in 2020, surpassing its initial values, before declining again to 1.04 in 2021. These changes suggest variability in the most liquid assets available, possibly reflecting shifts in inventory levels or current liability management.
- Cash Ratio
- The cash ratio, representing the most conservative liquidity measure, exhibits a downward trend from 0.54 in 2017 to 0.45 in 2018 and further to 0.27 in 2019, indicating a reduction in immediate cash and cash equivalents relative to current liabilities. The ratio then increased to 0.63 in 2020, reflecting an improved cash position, before decreasing somewhat to 0.53 in 2021. The fluctuations in the cash ratio highlight changing cash management strategies or cash flow conditions over time.
In summary, the liquidity metrics demonstrate a period of decreased short-term financial strength in 2019 across all ratios, followed by recovery in 2020. The subsequent slight declines in 2021 indicate a moderate easing in liquidity, but the company maintained ratios above critical thresholds. The patterns suggest active management of liquidity with response to operational or market conditions influencing short-term asset composition and availability.
Current Ratio
3M Co., current ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Current assets | 15,403) | 14,982) | 12,971) | 13,709) | 14,277) | |
| Current liabilities | 9,035) | 7,948) | 9,222) | 7,244) | 7,687) | |
| Liquidity Ratio | ||||||
| Current ratio1 | 1.70 | 1.89 | 1.41 | 1.89 | 1.86 | |
| Benchmarks | ||||||
| Current Ratio, Competitors2 | ||||||
| Boeing Co. | 1.33 | 1.39 | — | — | — | |
| Caterpillar Inc. | 1.46 | 1.53 | — | — | — | |
| Eaton Corp. plc | 1.04 | 1.56 | — | — | — | |
| GE Aerospace | 1.28 | 1.58 | — | — | — | |
| Honeywell International Inc. | 1.30 | 1.47 | — | — | — | |
| Lockheed Martin Corp. | 1.42 | 1.39 | — | — | — | |
| RTX Corp. | 1.19 | 1.21 | — | — | — | |
| Current Ratio, Sector | ||||||
| Capital Goods | 1.31 | 1.43 | — | — | — | |
| Current Ratio, Industry | ||||||
| Industrials | 1.29 | 1.41 | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Current ratio = Current assets ÷ Current liabilities
= 15,403 ÷ 9,035 = 1.70
2 Click competitor name to see calculations.
The analysis of the financial data over the five-year period reveals several fluctuating trends in liquidity and working capital components.
- Current Assets
- Current assets exhibited a general decline from 2017 through 2019, dropping from approximately 14.3 billion USD to about 13.0 billion USD. This downward trend reversed in 2020 and continued into 2021, reaching approximately 15.4 billion USD by the end of 2021, which marks the highest reported amount in the period.
- Current Liabilities
- Current liabilities displayed more volatility. After a slight decrease from roughly 7.7 billion USD in 2017 to 7.2 billion USD in 2018, there was a substantial increase to 9.2 billion USD in 2019. This was followed by a decline in 2020 to 7.9 billion USD and then a renewed increase to 9.0 billion USD in 2021.
- Current Ratio
- The current ratio, which measures the ability to cover short-term obligations, fluctuated throughout the period. It remained relatively stable and healthy above 1.8 in 2017 and 2018, dropped significantly to 1.41 in 2019, and bounced back to 1.89 in 2020. However, it decreased again in 2021 to 1.7. Despite the declines, the ratio consistently stayed above 1, indicating adequate liquidity.
Overall, the period showed cyclical patterns in key working capital metrics, with current liabilities influencing the current ratio's volatility. The ratio's resilience above 1.0 suggests maintained short-term financial stability, although the fluctuations warrant monitoring to ensure continued liquidity strength.
Quick Ratio
3M Co., quick ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Cash and cash equivalents | 4,564) | 4,634) | 2,353) | 2,853) | 3,053) | |
| Marketable securities, current | 201) | 404) | 98) | 380) | 1,076) | |
| Accounts receivable, net of allowances | 4,660) | 4,705) | 4,791) | 5,020) | 4,911) | |
| Total quick assets | 9,425) | 9,743) | 7,242) | 8,253) | 9,040) | |
| Current liabilities | 9,035) | 7,948) | 9,222) | 7,244) | 7,687) | |
| Liquidity Ratio | ||||||
| Quick ratio1 | 1.04 | 1.23 | 0.79 | 1.14 | 1.18 | |
| Benchmarks | ||||||
| Quick Ratio, Competitors2 | ||||||
| Boeing Co. | 0.34 | 0.41 | — | — | — | |
| Caterpillar Inc. | 0.89 | 1.02 | — | — | — | |
| Eaton Corp. plc | 0.54 | 0.68 | — | — | — | |
| GE Aerospace | 0.93 | 1.27 | — | — | — | |
| Honeywell International Inc. | 0.94 | 1.15 | — | — | — | |
| Lockheed Martin Corp. | 1.15 | 1.05 | — | — | — | |
| RTX Corp. | 0.81 | 0.78 | — | — | — | |
| Quick Ratio, Sector | ||||||
| Capital Goods | 0.71 | 0.83 | — | — | — | |
| Quick Ratio, Industry | ||||||
| Industrials | 0.80 | 0.87 | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 9,425 ÷ 9,035 = 1.04
2 Click competitor name to see calculations.
The analysis of the financial data reveals several noteworthy trends regarding liquidity measures over the five-year period.
- Total Quick Assets
- Total quick assets experienced a general declining trend from 2017 to 2019, decreasing from 9,040 million US dollars in 2017 to 7,242 million US dollars in 2019. This decrease reversed in 2020, with a significant increase to 9,743 million US dollars, followed by a slight decline to 9,425 million US dollars in 2021. Overall, total quick assets declined initially but demonstrated recovery in the last two years.
- Current Liabilities
- Current liabilities showed volatility throughout the period. The value decreased from 7,687 million US dollars in 2017 to 7,244 million US dollars in 2018, then increased sharply to 9,222 million US dollars in 2019. Afterward, it dropped to 7,948 million US dollars in 2020 before rising again to 9,035 million US dollars in 2021. This pattern indicates fluctuations in short-term obligations with no consistent trend of increase or decrease.
- Quick Ratio
- The quick ratio, which measures the company's ability to cover its current liabilities with its most liquid assets, declined notably from 1.18 in 2017 to 0.79 in 2019. This dip signifies a potential weakening of liquidity during this time. However, the ratio improved substantially in 2020, reaching 1.23, indicating strong liquidity. In 2021, the ratio slightly fell to 1.04 but remained above 1.0, suggesting the company generally maintained an adequate liquidity position in these years.
In summary, the company's liquidity position showed signs of stress in 2019, as evidenced by a lowered quick ratio and declining quick assets, but rebounded in 2020 and 2021 with improved liquidity ratios and increased quick assets. However, current liabilities displayed erratic movements, which could imply varying short-term financial obligations throughout the period. Overall, the liquidity metrics indicate a recovery phase following a period of constrained liquid resources.
Cash Ratio
3M Co., cash ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Cash and cash equivalents | 4,564) | 4,634) | 2,353) | 2,853) | 3,053) | |
| Marketable securities, current | 201) | 404) | 98) | 380) | 1,076) | |
| Total cash assets | 4,765) | 5,038) | 2,451) | 3,233) | 4,129) | |
| Current liabilities | 9,035) | 7,948) | 9,222) | 7,244) | 7,687) | |
| Liquidity Ratio | ||||||
| Cash ratio1 | 0.53 | 0.63 | 0.27 | 0.45 | 0.54 | |
| Benchmarks | ||||||
| Cash Ratio, Competitors2 | ||||||
| Boeing Co. | 0.20 | 0.29 | — | — | — | |
| Caterpillar Inc. | 0.31 | 0.36 | — | — | — | |
| Eaton Corp. plc | 0.08 | 0.19 | — | — | — | |
| GE Aerospace | 0.54 | 0.78 | — | — | — | |
| Honeywell International Inc. | 0.59 | 0.79 | — | — | — | |
| Lockheed Martin Corp. | 0.26 | 0.23 | — | — | — | |
| RTX Corp. | 0.22 | 0.25 | — | — | — | |
| Cash Ratio, Sector | ||||||
| Capital Goods | 0.32 | 0.44 | — | — | — | |
| Cash Ratio, Industry | ||||||
| Industrials | 0.39 | 0.47 | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 4,765 ÷ 9,035 = 0.53
2 Click competitor name to see calculations.
The financial data reveals notable fluctuations in liquidity and short-term obligations over the five-year period. Total cash assets exhibited a declining trend from 2017 through 2019, decreasing from 4,129 million US dollars to 2,451 million US dollars. However, the following years showed a recovery, with cash assets increasing to 5,038 million US dollars in 2020 and slightly declining to 4,765 million US dollars in 2021.
Current liabilities displayed variability without a consistent trend. After a moderate decrease from 7,687 million US dollars in 2017 to 7,244 million in 2018, liabilities rose significantly to 9,222 million in 2019. The subsequent year saw a reduction to 7,948 million, but liabilities rose again to 9,035 million by the end of 2021.
Examining liquidity through the cash ratio, a similar pattern emerges. The cash ratio decreased from 0.54 in 2017 to a low of 0.27 in 2019, reflecting a decline in liquidity relative to current liabilities. This ratio improved considerably in 2020 to 0.63, likely due to the increase in cash assets and decrease in liabilities that year. However, in 2021, the cash ratio declined again to 0.53, consistent with the marginal decrease in cash assets and increase in current liabilities.
- Overall trend summary
- The period from 2017 to 2019 was characterized by declining liquidity, as evidenced by falling cash assets and a lowering cash ratio amid rising current liabilities.
- The year 2020 marked an improvement in liquidity, with cash assets more than doubling from 2019 levels and current liabilities decreasing, resulting in the highest cash ratio in the observed period.
- In 2021, despite a slight reduction in cash assets and increase in liabilities, liquidity remained stronger than in the years prior to 2020, as the cash ratio stayed above 0.5.
These trends suggest that the company experienced pressures on liquidity leading up to 2019 but took measures to strengthen cash holdings or reduce liabilities in 2020. The diminished liquidity in 2019 could indicate increased short-term obligations or cash utilization, while the rebound in 2020 may reflect strategic adjustments in cash management or capital structure. The slight reversal in 2021 suggests continued attention to liquidity is warranted to maintain a healthy balance between cash reserves and current obligations.