Analysis of Solvency Ratios
Solvency ratios also known as long-term debt ratios measure a company ability to meet long-term obligations.
Solvency Ratios (Summary)
Debt Ratios
Coverage Ratios
Emerson Electric Co., solvency ratios
Based on: 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), 10-K (reporting date: 2014-09-30).
The solvency profile exhibits a cyclical pattern of leverage increase and subsequent reduction between 2014 and 2019, while maintaining a robust capacity to meet fixed financial obligations throughout the period.
- Leverage and Capitalization Ratios
- A notable increase in leverage occurred between 2014 and 2016, with the debt-to-equity ratio rising from 0.60 to 0.88 and the debt-to-capital ratio increasing from 0.37 to 0.47. This trend is mirrored in the debt-to-assets ratio, which climbed from 0.25 to a peak of 0.31 in 2015 and 2016. A significant deleveraging phase followed in 2017 and 2018, during which the debt-to-equity ratio declined to 0.53 and the debt-to-assets ratio reached a period low of 0.23. By 2019, a moderate upward trend resumed, with the debt-to-equity ratio increasing to 0.69 and the debt-to-capital ratio rising to 0.41.
- Financial Leverage
- Financial leverage followed the same trajectory as the capitalization ratios, peaking at 2.87 in 2016. This was followed by a sharp correction to 2.25 in 2017, indicating a reduction in the use of debt to finance assets. The ratio remained relatively stable in 2018 at 2.28 before increasing to 2.49 in 2019.
- Debt Coverage Performance
- Interest coverage and fixed charge coverage ratios demonstrate a high capacity for debt servicing, despite a marked contraction in 2016. Interest coverage reached a high of 21.81 in 2015 before dropping to 11.77 in 2016; however, a consistent recovery trend is observed from 2017 through 2019, ending at 15.22. The fixed charge coverage ratio followed a similar pattern, peaking at 8.04 in 2015 and hitting a low of 5.75 in 2016, before trending upward to 6.88 by September 30, 2019.
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Debt to Equity
Emerson Electric Co., debt to equity calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Short-term borrowings and current maturities of long-term debt | 1,444) | 1,623) | 862) | 2,584) | 2,553) | 2,465) | |
| Long-term debt, excluding current maturities | 4,277) | 3,137) | 3,794) | 4,062) | 4,289) | 3,559) | |
| Total debt | 5,721) | 4,760) | 4,656) | 6,646) | 6,842) | 6,024) | |
| Common stockholders’ equity | 8,233) | 8,947) | 8,718) | 7,568) | 8,081) | 10,119) | |
| Solvency Ratio | |||||||
| Debt to equity1 | 0.69 | 0.53 | 0.53 | 0.88 | 0.85 | 0.60 | |
| Benchmarks | |||||||
| Debt to Equity, Competitors2 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-09-30).
1 2019 Calculation
Debt to equity = Total debt ÷ Common stockholders’ equity
= 5,721 ÷ 8,233 = 0.69
2 Click competitor name to see calculations.
The solvency profile between 2014 and 2019 is characterized by a period of increasing leverage followed by a sharp deleveraging phase and a subsequent upward trend in the debt-to-equity ratio.
- Debt to Equity Ratio Trends
- The ratio increased from 0.60 in 2014 to a peak of 0.88 in 2016, indicating a growing reliance on borrowed funds relative to shareholders' equity. A substantial reduction occurred in 2017, where the ratio dropped to 0.53 and remained stable through 2018. By 2019, the ratio rose again to 0.69, suggesting a renewed shift toward debt financing.
- Total Debt Dynamics
- Total debt rose from US$ 6,024 million in 2014 to US$ 6,842 million in 2015. A significant contraction is observed in 2017, with debt falling to US$ 4,656 million, representing the lowest debt level in the analyzed period. This was followed by a steady increase, reaching US$ 5,721 million by 2019.
- Common Stockholders' Equity Volatility
- Equity experienced a declining trend from 2014 to 2016, falling from US$ 10,119 million to US$ 7,568 million. This contraction in the equity base amplified the impact of debt on the solvency ratio. Equity levels recovered moderately to US$ 8,947 million by 2018, before declining to US$ 8,233 million in 2019.
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Debt to Capital
Emerson Electric Co., debt to capital calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Short-term borrowings and current maturities of long-term debt | 1,444) | 1,623) | 862) | 2,584) | 2,553) | 2,465) | |
| Long-term debt, excluding current maturities | 4,277) | 3,137) | 3,794) | 4,062) | 4,289) | 3,559) | |
| Total debt | 5,721) | 4,760) | 4,656) | 6,646) | 6,842) | 6,024) | |
| Common stockholders’ equity | 8,233) | 8,947) | 8,718) | 7,568) | 8,081) | 10,119) | |
| Total capital | 13,954) | 13,707) | 13,374) | 14,214) | 14,923) | 16,143) | |
| Solvency Ratio | |||||||
| Debt to capital1 | 0.41 | 0.35 | 0.35 | 0.47 | 0.46 | 0.37 | |
| Benchmarks | |||||||
| Debt to Capital, Competitors2 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-09-30).
1 2019 Calculation
Debt to capital = Total debt ÷ Total capital
= 5,721 ÷ 13,954 = 0.41
2 Click competitor name to see calculations.
The solvency profile between 2014 and 2019 is characterized by significant fluctuations in leverage, marked by a period of increasing debt reliance followed by a strategic deleveraging phase and a subsequent increase in total debt.
- Total Debt Trends
- Total debt exhibited a volatile trajectory, peaking in 2015 at 6,842 million US dollars. A substantial reduction occurred by September 30, 2017, when debt levels dropped to 4,656 million US dollars, the lowest point in the analyzed period. However, this downward trend reversed over the following two years, with debt rising to 5,721 million US dollars by 2019.
- Total Capital Trends
- Total capital experienced a consistent decline from 2014 to 2017, falling from 16,143 million US dollars to 13,374 million US dollars. This contraction in the capital base was followed by a period of modest growth in 2018 and 2019, ending the period at 13,954 million US dollars.
- Debt to Capital Ratio Analysis
- The debt to capital ratio reflects the interplay between rising debt and a shrinking capital base from 2014 to 2016, resulting in an increase from 0.37 to a peak of 0.47. A sharp correction occurred in 2017, bringing the ratio down to 0.35, a level maintained through 2018. By 2019, the ratio rose again to 0.41, indicating a renewed increase in the proportion of debt relative to the company's total capital structure.
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Debt to Assets
Emerson Electric Co., debt to assets calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Short-term borrowings and current maturities of long-term debt | 1,444) | 1,623) | 862) | 2,584) | 2,553) | 2,465) | |
| Long-term debt, excluding current maturities | 4,277) | 3,137) | 3,794) | 4,062) | 4,289) | 3,559) | |
| Total debt | 5,721) | 4,760) | 4,656) | 6,646) | 6,842) | 6,024) | |
| Total assets | 20,497) | 20,390) | 19,589) | 21,743) | 22,088) | 24,177) | |
| Solvency Ratio | |||||||
| Debt to assets1 | 0.28 | 0.23 | 0.24 | 0.31 | 0.31 | 0.25 | |
| Benchmarks | |||||||
| Debt to Assets, Competitors2 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-09-30).
1 2019 Calculation
Debt to assets = Total debt ÷ Total assets
= 5,721 ÷ 20,497 = 0.28
2 Click competitor name to see calculations.
The financial data indicates a fluctuating solvency position between 2014 and 2019, characterized by periods of increasing leverage followed by a strategic reduction in debt, occurring against a general contraction of the asset base.
- Debt to Assets Ratio Trend
- The ratio experienced an initial increase from 0.25 in 2014 to a peak of 0.31 in 2015 and 2016. This upward trend was driven by a simultaneous increase in total debt and a reduction in total assets. A significant reversal occurred in 2017, where the ratio dropped to 0.24, reaching a period low of 0.23 in 2018. By 2019, the ratio climbed again to 0.28, suggesting a renewed reliance on debt financing.
- Total Debt Dynamics
- Total debt showed significant volatility, peaking at 6,842 million US$ in 2015 before undergoing a substantial reduction to 4,656 million US$ in 2017. This reduction represents a deleveraging phase that significantly improved the solvency profile during the 2017-2018 window. However, this trend reversed in 2019, with total debt increasing to 5,721 million US$.
- Total Asset Base Analysis
- Total assets exhibited a general downward trend, falling from 24,177 million US$ in 2014 to a low of 19,589 million US$ in 2017. While assets stabilized and grew slightly to 20,497 million US$ by 2019, the overall reduction in the asset base over the six-year period intensified the impact of debt fluctuations on the overall solvency ratio.
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Financial Leverage
Emerson Electric Co., financial leverage calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Total assets | 20,497) | 20,390) | 19,589) | 21,743) | 22,088) | 24,177) | |
| Common stockholders’ equity | 8,233) | 8,947) | 8,718) | 7,568) | 8,081) | 10,119) | |
| Solvency Ratio | |||||||
| Financial leverage1 | 2.49 | 2.28 | 2.25 | 2.87 | 2.73 | 2.39 | |
| Benchmarks | |||||||
| Financial Leverage, Competitors2 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-09-30).
1 2019 Calculation
Financial leverage = Total assets ÷ Common stockholders’ equity
= 20,497 ÷ 8,233 = 2.49
2 Click competitor name to see calculations.
Between 2014 and 2019, the company's capital structure was characterized by a general contraction in asset size and fluctuating levels of equity, leading to an inconsistent financial leverage profile.
- Asset Trends
- Total assets exhibited a downward trajectory from 2014 to 2017, decreasing from 24,177 million US$ to a low of 19,589 million US$. A modest recovery followed in 2018 and 2019, with assets stabilizing at 20,497 million US$.
- Equity Fluctuations
- Common stockholders' equity experienced a sharp reduction between 2014 and 2016, falling from 10,119 million US$ to 7,568 million US$. A subsequent recovery occurred through 2018, where equity reached 8,947 million US$, before declining to 8,233 million US$ by the end of the period in 2019.
- Financial Leverage Analysis
- The financial leverage ratio peaked in 2016 at 2.87, reflecting a higher reliance on debt relative to equity during the period of most significant equity decline. A sharp correction was observed in 2017, with the ratio falling to its lowest point of 2.25, driven by a simultaneous increase in equity and a further reduction in total assets. From 2017 to 2019, the ratio trended upward again, ending at 2.49, which suggests a gradual increase in the proportion of debt used to finance the asset base.
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Interest Coverage
Emerson Electric Co., interest coverage calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net earnings common stockholders | 2,306) | 2,203) | 1,518) | 1,635) | 2,710) | 2,147) | |
| Add: Net income attributable to noncontrolling interest | 22) | 21) | 32) | 29) | 23) | 37) | |
| Less: Discontinued operations, net of tax | —) | —) | (125) | 45) | —) | —) | |
| Add: Income tax expense | 531) | 443) | 660) | 697) | 1,428) | 1,164) | |
| Add: Interest expense | 201) | 202) | 201) | 215) | 200) | 218) | |
| Earnings before interest and tax (EBIT) | 3,060) | 2,869) | 2,536) | 2,531) | 4,361) | 3,566) | |
| Solvency Ratio | |||||||
| Interest coverage1 | 15.22 | 14.20 | 12.62 | 11.77 | 21.81 | 16.36 | |
| Benchmarks | |||||||
| Interest Coverage, Competitors2 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-09-30).
1 2019 Calculation
Interest coverage = EBIT ÷ Interest expense
= 3,060 ÷ 201 = 15.22
2 Click competitor name to see calculations.
The analysis of interest coverage from 2014 to 2019 reveals a robust solvency position characterized by a high margin of safety, despite fluctuations in operating earnings.
- Earnings Before Interest and Tax (EBIT) Trends
- EBIT exhibited significant volatility over the six-year period. A peak was recorded in 2015 at US$ 4,361 million, followed by a substantial contraction to US$ 2,531 million in 2016. Following this decline, a steady recovery trend is observed, with EBIT increasing incrementally each year to reach US$ 3,060 million by September 30, 2019.
- Interest Expense Stability
- Interest expenses remained remarkably consistent, fluctuating within a narrow range between US$ 200 million and US$ 218 million. This stability indicates a well-managed debt structure with predictable financing costs that remained unaffected by the volatility in operating income.
- Interest Coverage Ratio Performance
- The interest coverage ratio fluctuated in direct correlation with EBIT. The ratio reached a maximum of 21.81 in 2015 and a minimum of 11.77 in 2016. A progressive recovery is noted from 2017 through 2019, ending at 15.22. Throughout the entire period, the ratio remained consistently high, indicating that operating profits were significantly greater than the cost of servicing debt, which reflects a strong capacity to meet financial obligations.
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Fixed Charge Coverage
Emerson Electric Co., fixed charge coverage calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net earnings common stockholders | 2,306) | 2,203) | 1,518) | 1,635) | 2,710) | 2,147) | |
| Add: Net income attributable to noncontrolling interest | 22) | 21) | 32) | 29) | 23) | 37) | |
| Less: Discontinued operations, net of tax | —) | —) | (125) | 45) | —) | —) | |
| Add: Income tax expense | 531) | 443) | 660) | 697) | 1,428) | 1,164) | |
| Add: Interest expense | 201) | 202) | 201) | 215) | 200) | 218) | |
| Earnings before interest and tax (EBIT) | 3,060) | 2,869) | 2,536) | 2,531) | 4,361) | 3,566) | |
| Add: Rent expense | 285) | 279) | 289) | 273) | 391) | 411) | |
| Earnings before fixed charges and tax | 3,345) | 3,148) | 2,825) | 2,804) | 4,752) | 3,977) | |
| Interest expense | 201) | 202) | 201) | 215) | 200) | 218) | |
| Rent expense | 285) | 279) | 289) | 273) | 391) | 411) | |
| Fixed charges | 486) | 481) | 490) | 488) | 591) | 629) | |
| Solvency Ratio | |||||||
| Fixed charge coverage1 | 6.88 | 6.54 | 5.77 | 5.75 | 8.04 | 6.32 | |
| Benchmarks | |||||||
| Fixed Charge Coverage, Competitors2 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-09-30).
1 2019 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 3,345 ÷ 486 = 6.88
2 Click competitor name to see calculations.
The solvency profile between 2014 and 2019 demonstrates a consistent ability to meet fixed obligations, characterized by a strong coverage margin despite fluctuations in operating earnings.
- Earnings Before Fixed Charges and Tax
- A peak in earnings was recorded in 2015 at 4,752 million US dollars, followed by a significant contraction in 2016 to 2,804 million US dollars. From 2017 through 2019, a steady recovery trend is observed, with earnings increasing incrementally to reach 3,345 million US dollars by the end of the period.
- Fixed Charges
- Fixed charges exhibited a general downward trend over the analyzed timeframe. Obligations decreased from 629 million US dollars in 2014 to a relatively stable range between 481 million and 490 million US dollars from 2016 to 2019, indicating a reduction in the company's fixed financial burdens.
- Fixed Charge Coverage Ratio
- The coverage ratio fluctuated in alignment with earnings volatility. The ratio reached its maximum of 8.04 in 2015, coinciding with peak earnings and declining fixed charges. A trough occurred in 2016 at 5.75, after which the ratio improved steadily to 6.88 by 2019. Throughout the entire six-year period, the ratio remained well above 5.0, suggesting a robust margin of safety for servicing fixed obligations.
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