Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
Eaton Corp. plc, liquidity ratios
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Current ratio | 1.50 | 1.51 | 1.38 | 1.04 | 1.56 | |
| Quick ratio | 0.85 | 0.91 | 0.73 | 0.54 | 0.68 | |
| Cash ratio | 0.26 | 0.34 | 0.09 | 0.08 | 0.19 |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Current Ratio
- The current ratio experienced a decline from 1.56 in 2020 to a low of 1.04 in 2021, indicating a decrease in short-term liquidity. Following this, the ratio improved over the subsequent years, rising to 1.38 in 2022 and stabilizing around 1.5 in both 2023 and 2024. This suggests a recovery in the company's ability to cover its current liabilities with current assets, approaching the initial strong liquidity position observed in 2020.
- Quick Ratio
- The quick ratio followed a similar pattern, starting at 0.68 in 2020 and decreasing to a minimum of 0.54 in 2021. This was followed by a gradual improvement to 0.73 in 2022 and further increases to 0.91 and 0.85 in 2023 and 2024 respectively. Despite the positive trend, the quick ratio remained below 1.0 throughout the period, indicating that the company did not consistently hold sufficient liquid assets to fully cover its current liabilities without relying on inventory.
- Cash Ratio
- The cash ratio was relatively low over the initial years, dropping from 0.19 in 2020 to 0.08 in 2021 and then to 0.09 in 2022, suggesting limited immediate cash availability relative to current liabilities during that period. However, a notable increase occurred in 2023 with the ratio rising significantly to 0.34, followed by a slight decline to 0.26 in 2024. This pattern indicates an improvement in the most liquid assets held by the company, enhancing short-term financial flexibility, although the cash ratio remained modest overall.
Current Ratio
Eaton Corp. plc, current ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Current assets | 11,801) | 11,675) | 8,746) | 7,511) | 9,178) | |
| Current liabilities | 7,857) | 7,747) | 6,360) | 7,212) | 5,881) | |
| Liquidity Ratio | ||||||
| Current ratio1 | 1.50 | 1.51 | 1.38 | 1.04 | 1.56 | |
| Benchmarks | ||||||
| Current Ratio, Competitors2 | ||||||
| Boeing Co. | 1.32 | 1.14 | 1.22 | 1.33 | 1.39 | |
| Caterpillar Inc. | 1.42 | 1.35 | 1.39 | 1.46 | 1.53 | |
| GE Aerospace | 1.09 | 1.18 | 1.16 | 1.28 | 1.58 | |
| Honeywell International Inc. | 1.31 | 1.27 | 1.25 | 1.30 | 1.47 | |
| Lockheed Martin Corp. | 1.13 | 1.21 | 1.32 | 1.42 | 1.39 | |
| RTX Corp. | 0.99 | 1.04 | 1.09 | 1.19 | 1.21 | |
| Current Ratio, Sector | ||||||
| Capital Goods | 1.23 | 1.18 | 1.22 | 1.31 | 1.43 | |
| Current Ratio, Industry | ||||||
| Industrials | 1.19 | 1.16 | 1.20 | 1.29 | 1.41 | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Current ratio = Current assets ÷ Current liabilities
= 11,801 ÷ 7,857 = 1.50
2 Click competitor name to see calculations.
- Current Assets
- The current assets demonstrate fluctuations over the five-year period. Starting at 9,178 million USD in 2020, there was a noticeable decline in 2021 to 7,511 million USD. However, this was followed by a recovery and consistent growth in the subsequent years, reaching a peak of 11,801 million USD in 2024, indicating an overall upward trend in liquidity resources.
- Current Liabilities
- Current liabilities have shown variability, increasing from 5,881 million USD in 2020 to a higher point of 7,212 million USD in 2021. A decline occurred in 2022 to 6,360 million USD, but liabilities rose again in the following years, reaching 7,857 million USD by 2024. This pattern suggests some volatility in short-term obligations, with a generally increasing tendency towards the later years.
- Current Ratio
- The current ratio, an indicator of short-term financial health, started at a strong 1.56 in 2020. It then sharply decreased to 1.04 in 2021, suggesting a potential liquidity concern during that year. Recovery is observed in 2022 with a ratio of 1.38, followed by consistent improvement to 1.51 in 2023 and stabilizing slightly lower at 1.5 in 2024. This trend reflects an initial liquidity tightening with subsequent restoration and maintenance of a more comfortable liquidity position.
Quick Ratio
Eaton Corp. plc, quick ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Cash | 555) | 488) | 294) | 297) | 438) | |
| Short-term investments | 1,525) | 2,121) | 261) | 271) | 664) | |
| Accounts receivable, net | 4,619) | 4,475) | 4,076) | 3,297) | 2,904) | |
| Total quick assets | 6,699) | 7,084) | 4,631) | 3,865) | 4,006) | |
| Current liabilities | 7,857) | 7,747) | 6,360) | 7,212) | 5,881) | |
| Liquidity Ratio | ||||||
| Quick ratio1 | 0.85 | 0.91 | 0.73 | 0.54 | 0.68 | |
| Benchmarks | ||||||
| Quick Ratio, Competitors2 | ||||||
| Boeing Co. | 0.39 | 0.28 | 0.32 | 0.34 | 0.41 | |
| Caterpillar Inc. | 0.80 | 0.74 | 0.79 | 0.89 | 1.02 | |
| GE Aerospace | 0.78 | 0.78 | 0.81 | 0.93 | 1.27 | |
| Honeywell International Inc. | 0.88 | 0.84 | 0.88 | 0.94 | 1.15 | |
| Lockheed Martin Corp. | 0.92 | 0.99 | 1.09 | 1.15 | 1.05 | |
| RTX Corp. | 0.60 | 0.63 | 0.69 | 0.81 | 0.78 | |
| Quick Ratio, Sector | ||||||
| Capital Goods | 0.62 | 0.60 | 0.64 | 0.71 | 0.83 | |
| Quick Ratio, Industry | ||||||
| Industrials | 0.69 | 0.66 | 0.72 | 0.80 | 0.87 | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 6,699 ÷ 7,857 = 0.85
2 Click competitor name to see calculations.
The financial data reveals notable trends in liquidity and short-term financial stability over the five-year period.
- Total Quick Assets
- Quick assets showed a fluctuating yet generally upward trend from 2020 to 2024. Starting at US$4,006 million in 2020, the value dipped slightly in 2021 to US$3,865 million but then increased substantially in the subsequent years, reaching a peak of US$7,084 million in 2023 before slightly declining to US$6,699 million in 2024. This overall growth indicates improved availability of liquid assets that can quickly be converted to cash.
- Current Liabilities
- Current liabilities consistently increased throughout the period. Beginning at US$5,881 million in 2020, liabilities rose to US$7,857 million by the end of 2024. Although there was a slight decrease from 2021 (US$7,212 million) to 2022 (US$6,360 million), the general trend shows escalating amounts of short-term obligations, potentially exerting pressure on liquidity management.
- Quick Ratio
- The quick ratio, a key indicator of short-term financial health, mirrored the trends in quick assets and current liabilities. It declined from 0.68 in 2020 to a low of 0.54 in 2021, reflecting reduced liquidity relative to liabilities. Following this, there was a marked improvement to 0.73 in 2022, further rising to a peak of 0.91 in 2023, suggesting enhanced ability to cover current liabilities with quick assets. In 2024, the ratio slightly decreased to 0.85, still reflecting a relatively strong liquidity position compared to earlier years.
Overall, the data indicates an improvement in liquidity from 2021 onwards despite rising current liabilities. The company has strengthened its quick asset base significantly, resulting in an improved quick ratio, which suggests better short-term solvency and potential flexibility in meeting immediate financial obligations.
Cash Ratio
Eaton Corp. plc, cash ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Cash | 555) | 488) | 294) | 297) | 438) | |
| Short-term investments | 1,525) | 2,121) | 261) | 271) | 664) | |
| Total cash assets | 2,080) | 2,609) | 555) | 568) | 1,102) | |
| Current liabilities | 7,857) | 7,747) | 6,360) | 7,212) | 5,881) | |
| Liquidity Ratio | ||||||
| Cash ratio1 | 0.26 | 0.34 | 0.09 | 0.08 | 0.19 | |
| Benchmarks | ||||||
| Cash Ratio, Competitors2 | ||||||
| Boeing Co. | 0.27 | 0.17 | 0.19 | 0.20 | 0.29 | |
| Caterpillar Inc. | 0.21 | 0.20 | 0.22 | 0.31 | 0.36 | |
| GE Aerospace | 0.42 | 0.45 | 0.44 | 0.54 | 0.78 | |
| Honeywell International Inc. | 0.52 | 0.44 | 0.51 | 0.59 | 0.79 | |
| Lockheed Martin Corp. | 0.13 | 0.09 | 0.16 | 0.26 | 0.23 | |
| RTX Corp. | 0.11 | 0.14 | 0.16 | 0.22 | 0.25 | |
| Cash Ratio, Sector | ||||||
| Capital Goods | 0.26 | 0.24 | 0.26 | 0.32 | 0.44 | |
| Cash Ratio, Industry | ||||||
| Industrials | 0.31 | 0.29 | 0.32 | 0.39 | 0.47 | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 2024 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 2,080 ÷ 7,857 = 0.26
2 Click competitor name to see calculations.
The financial data over the five-year period reveals notable fluctuations in both liquidity and short-term obligations.
- Total Cash Assets
- The total cash assets demonstrate a declining trend from 1102 million US dollars in 2020 to 555 million in 2022. This was followed by a significant increase, peaking at 2609 million in 2023 before slightly decreasing to 2080 million in 2024. The sharp rise in 2023 suggests a strategic accumulation of cash reserves or improved cash management during that year.
- Current Liabilities
- Current liabilities rose consistently from 5881 million in 2020 to 7212 million in 2021, then decreased to 6360 million in 2022. However, liabilities increased again, reaching 7747 million in 2023 and slightly up to 7857 million in 2024. This pattern indicates fluctuations in short-term obligations with an overall increasing trend by the end of the period, which may affect liquidity risk.
- Cash Ratio
- The cash ratio, measuring the ability to cover current liabilities with cash assets, declined from 0.19 in 2020 to 0.08 in 2021 and marginally improved to 0.09 in 2022. Thereafter, a significant increase to 0.34 in 2023 occurred, followed by a slight decrease to 0.26 in 2024. The low ratios in 2021 and 2022 suggest weaker liquidity positions, whereas the improvement in 2023 and 2024 reflects enhanced capacity to meet short-term liabilities with cash.
Overall, the data suggest that while current liabilities have generally increased over the recent years, the company improved its liquidity position substantially from 2022 onwards, primarily through increased cash holdings. The cash ratio’s fluctuations highlight varying degrees of liquidity risk, with the strongest liquidity observed in 2023. The decline in cash assets and cash ratio during 2020-2022 may warrant attention regarding short-term financial health during that period.