Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
Air Products & Chemicals Inc., liquidity ratios
Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).
The liquidity position of the entity exhibited a substantial and consistent strengthening between 2015 and 2020. There is a clear transition from a state of potential liquidity pressure in 2015 to a position of significant excess liquidity by 2020, characterized by an aggressive increase across all three primary liquidity metrics.
- Current Ratio
- An upward trajectory is observed, starting from 0.80 in 2015, which indicated that current liabilities exceeded current assets. This ratio improved sharply to 2.36 by 2017 and continued to climb, reaching a peak of 3.59 in 2020. This progression suggests a significant expansion in the margin of safety for meeting short-term obligations.
- Quick Ratio
- The quick ratio followed a similar growth pattern, rising from 0.44 in 2015 to 3.16 in 2020. A critical threshold was crossed in 2016 and 2017, where the ratio moved from below 1.0 to nearly 2.0, indicating that the entity gained the ability to cover its current liabilities without relying on the sale of inventories.
- Cash Ratio
- The most dramatic volatility and growth are evident in the cash ratio, which increased from a negligible 0.06 in 2015 to 2.63 in 2020. The surge between 2016 and 2017, where the ratio jumped from 0.46 to 1.48, demonstrates a rapid accumulation of cash and cash equivalents relative to current liabilities.
The convergence of these trends indicates that the overall improvement in liquidity was primarily driven by an increase in cash holdings rather than an increase in inventory or receivables. By 2020, the proximity of the cash ratio (2.63) to the current ratio (3.59) suggests that highly liquid assets comprise the vast majority of the current asset base, leaving the entity in a highly liquid, though potentially under-utilized, capital position.
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Current Ratio
Air Products & Chemicals Inc., current ratio calculation, comparison to benchmarks
| Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Current assets | 8,684,900) | 4,618,300) | 5,082,200) | 5,876,700) | 4,317,300) | 2,910,800) | |
| Current liabilities | 2,416,700) | 1,820,900) | 2,338,300) | 2,489,000) | 3,283,300) | 3,648,100) | |
| Liquidity Ratio | |||||||
| Current ratio1 | 3.59 | 2.54 | 2.17 | 2.36 | 1.31 | 0.80 | |
| Benchmarks | |||||||
| Current Ratio, Competitors2 | |||||||
| Linde plc | — | — | — | — | — | — | |
| Sherwin-Williams Co. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).
1 2020 Calculation
Current ratio = Current assets ÷ Current liabilities
= 8,684,900 ÷ 2,416,700 = 3.59
2 Click competitor name to see calculations.
The liquidity position of the organization has undergone a significant transformation between September 30, 2015, and September 30, 2020, characterized by a substantial and consistent increase in short-term solvency.
- Current Assets Trend
- Current assets experienced an overall upward trajectory, increasing from US$ 2.91 billion in 2015 to US$ 8.68 billion in 2020. Despite a moderate decline between 2017 and 2019, a sharp escalation occurred in 2020, where assets nearly doubled compared to the previous year's closing balance.
- Current Liabilities Trend
- A steady reduction in current liabilities was observed from 2015 through 2019, with obligations falling from US$ 3.65 billion to a low of US$ 1.82 billion. While liabilities increased to US$ 2.42 billion in 2020, the level remained substantially lower than the 2015 starting point.
- Current Ratio Interpretation
- The current ratio demonstrates a strong positive trend, rising from 0.80 in 2015 to 3.59 in 2020. The 2015 ratio, being below 1.0, indicates a period where current liabilities exceeded current assets, suggesting a constrained liquidity position. The subsequent growth indicates a shift toward a highly liquid state, culminating in 2020 when current assets covered current liabilities more than 3.5 times over.
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Quick Ratio
Air Products & Chemicals Inc., quick ratio calculation, comparison to benchmarks
| Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Cash and cash items | 5,253,000) | 2,248,700) | 2,791,300) | 3,273,600) | 1,501,300) | 206,400) | |
| Short-term investments | 1,104,900) | 166,000) | 184,700) | 404,000) | —) | —) | |
| Trade receivables, net | 1,274,800) | 1,260,200) | 1,207,200) | 1,174,000) | 1,439,900) | 1,406,200) | |
| Total quick assets | 7,632,700) | 3,674,900) | 4,183,200) | 4,851,600) | 2,941,200) | 1,612,600) | |
| Current liabilities | 2,416,700) | 1,820,900) | 2,338,300) | 2,489,000) | 3,283,300) | 3,648,100) | |
| Liquidity Ratio | |||||||
| Quick ratio1 | 3.16 | 2.02 | 1.79 | 1.95 | 0.90 | 0.44 | |
| Benchmarks | |||||||
| Quick Ratio, Competitors2 | |||||||
| Linde plc | — | — | — | — | — | — | |
| Sherwin-Williams Co. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).
1 2020 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 7,632,700 ÷ 2,416,700 = 3.16
2 Click competitor name to see calculations.
A significant strengthening of the short-term liquidity position is observed between September 30, 2015, and September 30, 2020. The organization transitioned from a state of potential liquidity constraint to a position of substantial financial flexibility.
- Quick Ratio Evolution
- The quick ratio exhibited a strong upward trend, increasing from 0.44 in 2015 to 3.16 in 2020. A pivotal shift occurred between 2016 and 2017, when the ratio rose from 0.90 to 1.95, signaling that quick assets became more than sufficient to cover current liabilities without the need to liquidate inventory.
- Quick Asset Trends
- Total quick assets grew from 1.61 billion USD in 2015 to a peak of 7.63 billion USD in 2020. Despite a moderate decline between 2017 and 2019, the assets surged by approximately 107% in the final year of the analyzed period, driving the overall liquidity increase.
- Current Liability Dynamics
- Current liabilities followed a general downward trajectory for the majority of the period, falling from 3.65 billion USD in 2015 to a low of 1.82 billion USD in 2019. Although liabilities increased to 2.42 billion USD in 2020, the simultaneous increase in quick assets ensured that the liquidity ratio continued to improve.
The correlation between the reduction in current liabilities through 2019 and the aggressive accumulation of quick assets, particularly in 2020, indicates a strategic improvement in the company's ability to meet its immediate financial obligations.
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Cash Ratio
Air Products & Chemicals Inc., cash ratio calculation, comparison to benchmarks
| Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Cash and cash items | 5,253,000) | 2,248,700) | 2,791,300) | 3,273,600) | 1,501,300) | 206,400) | |
| Short-term investments | 1,104,900) | 166,000) | 184,700) | 404,000) | —) | —) | |
| Total cash assets | 6,357,900) | 2,414,700) | 2,976,000) | 3,677,600) | 1,501,300) | 206,400) | |
| Current liabilities | 2,416,700) | 1,820,900) | 2,338,300) | 2,489,000) | 3,283,300) | 3,648,100) | |
| Liquidity Ratio | |||||||
| Cash ratio1 | 2.63 | 1.33 | 1.27 | 1.48 | 0.46 | 0.06 | |
| Benchmarks | |||||||
| Cash Ratio, Competitors2 | |||||||
| Linde plc | — | — | — | — | — | — | |
| Sherwin-Williams Co. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).
1 2020 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 6,357,900 ÷ 2,416,700 = 2.63
2 Click competitor name to see calculations.
An analysis of the liquidity position reveals a substantial and consistent increase in the cash ratio between September 30, 2015, and September 30, 2020. The ratio rose from 0.06 to 2.63, signaling a fundamental transition from a state of minimal immediate cash availability to a highly liquid position where cash assets significantly exceed current obligations.
- Cash Asset Accumulation
- Total cash assets experienced exponential growth over the analyzed period, increasing from US$ 206,400 thousand in 2015 to US$ 6,357,900 thousand by 2020. A significant surge is observed between 2015 and 2017, with a final peak occurring in 2020.
- Current Liability Management
- Current liabilities demonstrated a general downward trend, decreasing from US$ 3,648,100 thousand in 2015 to US$ 2,416,700 thousand in 2020. The simultaneous reduction in short-term obligations and the increase in cash holdings served to accelerate the improvement of the liquidity profile.
- Cash Ratio Progression
- The cash ratio progressed from 0.06 in 2015 to 1.48 in 2017, marking the point where cash assets alone became sufficient to cover all current liabilities. Following a period of relative stabilization between 2018 and 2019, where the ratio fluctuated between 1.27 and 1.33, a sharp increase to 2.63 was recorded in 2020, indicating an exceptionally high level of immediate solvency.
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