Analysis of Liquidity Ratios
Liquidity ratios measure the company ability to meet its short-term obligations.
Liquidity Ratios (Summary)
Estée Lauder Cos. Inc., liquidity ratios
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
- Current Ratio
- The current ratio demonstrates a fluctuating yet overall declining trend over the analyzed period. Starting at 1.86 in mid-2018, it declined to 1.57 in 2019, increased again in 2020 and 2021 to 1.72 and 1.84 respectively, and then decreased consecutively in 2022 and 2023 to reach 1.46. This pattern indicates some variability in short-term liquidity management, with a recent tendency toward lower current assets relative to current liabilities.
- Quick Ratio
- The quick ratio shows a similar downward trend with some volatility. It began at 1.27 in 2018, dropped to 1.05 in 2019, and then rose moderately to 1.2 in 2020 and 1.26 in 2021. Following this peak, the ratio declined sharply to 0.96 in 2022 and further to 0.88 in 2023. This signals a reduction in the company's liquid assets excluding inventory, suggesting a weakening ability to cover short-term liabilities with the most liquid assets.
- Cash Ratio
- The cash ratio exhibits notable fluctuations but an overall declining trajectory in recent years. It decreased from 0.82 in 2018 to 0.65 in 2019, rose to 0.97 in 2020 and slightly decreased to 0.94 in 2021. Thereafter, it fell significantly to 0.68 in 2022 and slightly declined again to 0.65 in 2023. This pattern reflects a diminished level of cash and cash equivalents relative to current liabilities, potentially indicating tighter liquidity conditions or greater utilization of cash resources.
Current Ratio
Estée Lauder Cos. Inc., current ratio calculation, comparison to benchmarks
| Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Current assets | 9,139) | 9,298) | 9,768) | 8,892) | 7,212) | 6,168) | |
| Current liabilities | 6,240) | 5,815) | 5,298) | 5,179) | 4,605) | 3,310) | |
| Liquidity Ratio | |||||||
| Current ratio1 | 1.46 | 1.60 | 1.84 | 1.72 | 1.57 | 1.86 | |
| Benchmarks | |||||||
| Current Ratio, Competitors2 | |||||||
| Procter & Gamble Co. | 0.63 | 0.65 | 0.70 | 0.85 | 0.75 | — | |
| Current Ratio, Industry | |||||||
| Consumer Staples | 0.84 | 0.87 | 0.93 | 0.92 | — | — | |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 2023 Calculation
Current ratio = Current assets ÷ Current liabilities
= 9,139 ÷ 6,240 = 1.46
2 Click competitor name to see calculations.
The analysis of the annual financial data reveals several key trends in the liquidity position over the observed periods.
- Current Assets
- The current assets show an overall increasing trend from 6,168 million US dollars in mid-2018 to a peak of 9,768 million in mid-2021. After this peak, current assets slightly declined to 9,298 million in mid-2022 and further to 9,139 million in mid-2023. This indicates growth in liquid and short-term assets for the majority of the period, with a modest contraction in the last two years.
- Current Liabilities
- Current liabilities consistently increased throughout the period, rising from 3,310 million US dollars in mid-2018 to 6,240 million in mid-2023. This steady rise suggests heightened short-term obligations, which may impact the company’s liquidity if not managed carefully.
- Current Ratio
- The current ratio, which measures liquidity by comparing current assets to current liabilities, shows some variability. It started at a healthy 1.86 in mid-2018, then declined to 1.57 in mid-2019. It improved again in 2020 and 2021 to 1.72 and 1.84 respectively, indicating better coverage of current liabilities by assets. However, in the last two years, the ratio declined to 1.60 in 2022 and further to 1.46 in 2023. This downward trend in the current ratio, particularly below 1.5, could indicate a relative decrease in short-term financial flexibility.
Overall, while the company increased its current assets significantly up to 2021, the consistent rise in current liabilities has led to a decreasing current ratio from 2021 onward. This suggests growing short-term financial commitments relative to liquid resources, which may warrant closer monitoring of working capital management in the recent periods.
Quick Ratio
Estée Lauder Cos. Inc., quick ratio calculation, comparison to benchmarks
| Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Cash and cash equivalents | 4,029) | 3,957) | 4,958) | 5,022) | 2,987) | 2,181) | |
| Short-term investments | —) | —) | —) | —) | —) | 534) | |
| Accounts receivable, net | 1,452) | 1,629) | 1,702) | 1,194) | 1,831) | 1,487) | |
| Total quick assets | 5,481) | 5,586) | 6,660) | 6,216) | 4,818) | 4,202) | |
| Current liabilities | 6,240) | 5,815) | 5,298) | 5,179) | 4,605) | 3,310) | |
| Liquidity Ratio | |||||||
| Quick ratio1 | 0.88 | 0.96 | 1.26 | 1.20 | 1.05 | 1.27 | |
| Benchmarks | |||||||
| Quick Ratio, Competitors2 | |||||||
| Procter & Gamble Co. | 0.38 | 0.37 | 0.45 | 0.62 | 0.51 | — | |
| Quick Ratio, Industry | |||||||
| Consumer Staples | 0.37 | 0.38 | 0.43 | 0.47 | — | — | |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 2023 Calculation
Quick ratio = Total quick assets ÷ Current liabilities
= 5,481 ÷ 6,240 = 0.88
2 Click competitor name to see calculations.
- Total Quick Assets
- The total quick assets showed a general upward trend from June 30, 2018, reaching a peak in June 30, 2021, at 6,660 million US dollars. Subsequently, there was a decline in the following two years, decreasing to 5,586 million in 2022 and slightly further to 5,481 million in 2023. This indicates an initial strengthening in liquid assets followed by a reduction in the most recent periods.
- Current Liabilities
- Current liabilities consistently increased over the entire period. Starting at 3,310 million US dollars in 2018, they rose annually to reach 6,240 million by June 30, 2023. This steady increase suggests growing short-term obligations, which might affect liquidity if not matched by corresponding asset growth.
- Quick Ratio
- The quick ratio, which measures the ability to cover current liabilities with quick assets, exhibited fluctuations over the period. Beginning at 1.27 in 2018, it declined to 1.05 in 2019, then increased again to 1.26 in 2021, indicating an improvement in liquidity. After 2021, the ratio dropped below 1.0, reaching 0.96 in 2022 and further declining to 0.88 in 2023. This decline below unity in the last two years signals potential liquidity concerns as quick assets are no longer sufficient to cover current liabilities.
- Summary
- The data exhibit a strengthening of liquid assets up to mid-2021, after which there is a noticeable decline. Concurrently, current liabilities have increased steadily throughout the period. The quick ratio reflects these dynamics, peaking in 2021 but falling below 1.0 in recent years, which may warrant attention to liquidity management. The decline in the quick ratio despite relatively high quick assets suggests that liabilities are growing at a faster pace, potentially impacting short-term financial stability.
Cash Ratio
Estée Lauder Cos. Inc., cash ratio calculation, comparison to benchmarks
| Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Cash and cash equivalents | 4,029) | 3,957) | 4,958) | 5,022) | 2,987) | 2,181) | |
| Short-term investments | —) | —) | —) | —) | —) | 534) | |
| Total cash assets | 4,029) | 3,957) | 4,958) | 5,022) | 2,987) | 2,715) | |
| Current liabilities | 6,240) | 5,815) | 5,298) | 5,179) | 4,605) | 3,310) | |
| Liquidity Ratio | |||||||
| Cash ratio1 | 0.65 | 0.68 | 0.94 | 0.97 | 0.65 | 0.82 | |
| Benchmarks | |||||||
| Cash Ratio, Competitors2 | |||||||
| Procter & Gamble Co. | 0.23 | 0.22 | 0.31 | 0.49 | 0.34 | — | |
| Cash Ratio, Industry | |||||||
| Consumer Staples | 0.22 | 0.23 | 0.30 | 0.33 | — | — | |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 2023 Calculation
Cash ratio = Total cash assets ÷ Current liabilities
= 4,029 ÷ 6,240 = 0.65
2 Click competitor name to see calculations.
- Total Cash Assets
- The total cash assets display an overall upward trend from 2018 to 2020, increasing from $2,715 million to $5,022 million. This peak in 2020 is followed by a slight decline in 2021 to $4,958 million, and a more notable decrease in 2022 to $3,957 million. In 2023, a marginal recovery is observed, with cash assets rising to $4,029 million. This pattern indicates a significant accumulation of cash assets leading up to 2020, potentially reflecting a strategic liquidity buildup, which then moderated over the subsequent years.
- Current Liabilities
- Current liabilities have shown a consistent and steady increase throughout the period, starting at $3,310 million in 2018 and rising each year to reach $6,240 million in 2023. The continuous growth suggests increasing short-term obligations or operational scale expansion, which may be contributing to heightened working capital requirements.
- Cash Ratio
- The cash ratio, which measures the ability to cover current liabilities with cash and cash equivalents, fluctuates notably over the years. Beginning at 0.82 in 2018, it drops to 0.65 in 2019, indicating a reduced liquidity buffer. A substantial recovery is seen in 2020 and 2021 with ratios of 0.97 and 0.94 respectively, reflecting strong liquidity positions during those years. However, the ratio declines again to 0.68 in 2022 and remains at 0.65 in 2023, paralleling the decrease in cash assets relative to increasing liabilities. Over the entire period, the ratio does not exceed 1, indicating that cash assets consistently remain below current liabilities, which may warrant close monitoring of liquidity risk.
- Overall Analysis
- The data reveals a significant buildup of cash assets culminating in 2020, followed by a reduction coupled with an ongoing increase in current liabilities. The resulting decrease in the cash ratio post-2021 suggests tightening liquidity conditions. The company’s ability to cover short-term liabilities solely with cash assets appears to have weakened in the later years, despite the partial rebound in cash holdings in 2023. These trends point to potential challenges in liquidity management that merit further evaluation alongside other working capital components.