Generac Holdings Inc. (NYSE:GNRC)

Current Ratio

The current ratio demonstrated a fluctuating trend over the five-year period. Starting at 2.1 in 2017, it experienced a slight decline to 2.0 in 2018, followed by a steady increase reaching a peak of 2.6 in 2020. However, in 2021, there was a significant decrease to 1.6, indicating a reduction in short-term liquidity compared to previous years.

Quick Ratio

The quick ratio showed a similar pattern to the current ratio but with more pronounced changes. It started at 1.08 in 2017, dipped slightly to 0.98 in 2018, then improved to 1.29 in 2019, and further increased to 1.61 in 2020. In 2021, it sharply declined to 0.6, suggesting a notable decrease in the company’s ability to cover immediate liabilities without relying on inventory.

Cash Ratio

The cash ratio reflected an overall upward trend from 2017 to 2020, beginning at 0.36, increasing gradually to 0.4 in 2018, 0.65 in 2019, and reaching 1.02 in 2020. This indicates improving cash sufficiency relative to current liabilities during this period. However, in 2021, the ratio dropped markedly to 0.13, highlighting a substantial reduction in cash reserves available to meet immediate obligations.

Overall Analysis

Across all liquidity measures, the data indicate strengthening liquidity positions through 2020, with peak ratios signaling enhanced capacity to meet short-term liabilities. The contrasting sharp declines in all ratios in 2021 imply a significant deterioration in liquidity, possibly due to changes in working capital management, cash holdings, or an increase in current liabilities. This shift warrants further investigation to understand underlying causes and potential impacts on financial stability.

The financial data reveals notable movements in both current assets and current liabilities over the five-year period ending December 31, 2021. Current assets exhibit a consistent upward trajectory, increasing from approximately $819 million in 2017 to about $1.85 billion by 2021. This growth suggests an expansion in short-term resources available to the company, which typically enhances liquidity.

Similarly, current liabilities demonstrate an overall increasing trend, albeit with some fluctuations. They rose significantly from about $389 million in 2017 to nearly $1.16 billion in 2021. This upward movement indicates a growing amount of obligations due within a year, which may reflect increased operational scale or changes in working capital management.

The current ratio, a key liquidity metric calculated as current assets divided by current liabilities, shows a more varied pattern. From 2.1 in 2017, it slightly declined to 2.0 in 2018 before rising to 2.41 in 2019 and then further to 2.6 in 2020, signaling an improvement in short-term financial stability during this period. However, in 2021, the current ratio dropped markedly to 1.6, indicating a relative decline in liquidity. Despite the growth in current assets, the much faster increase in current liabilities in 2021 negatively affected this ratio, suggesting that the company’s short-term obligations grew disproportionately compared to its liquid assets.

In summary, while the company increased its current assets significantly and maintained a generally strong liquidity position through 2020, the sharp rise in current liabilities in 2021 led to a notable decrease in the current ratio. This shift warrants attention as it may imply increased pressure on the company's ability to cover short-term liabilities promptly.

The analysis of the financial data over the five-year period reveals distinct trends in the company's liquidity position, as reflected in the total quick assets, current liabilities, and quick ratio.

Total Quick Assets

The total quick assets increased steadily from 2017 through 2020, starting at approximately $418 million and peaking at just over $1 billion in 2020. This represents a substantial growth, more than doubling within this timeframe. However, in 2021, there was a significant decline to around $694 million, indicating a reduction in readily available liquid assets after peaking the previous year.

Current Liabilities

Current liabilities exhibited volatility but generally increased throughout the period. Beginning at approximately $389 million in 2017, current liabilities rose sharply to about $561 million in 2018. A slight decrease was observed in 2019 to just under $500 million, followed by a moderate increase in 2020 to approximately $642 million. The most notable change occurred in 2021, with current liabilities nearly doubling from the previous year to approximately $1.16 billion. This sharp increase signifies a heightened short-term financial obligation burden.

Quick Ratio

The quick ratio, an indicator of short-term liquidity, started slightly above 1.0 in 2017, suggesting the company had sufficient quick assets to cover its current liabilities. It dipped below 1.0 in 2018 but rebounded significantly in 2019 and 2020, reaching a high of 1.61 in 2020, which denotes a strong short-term financial position. However, in 2021, the quick ratio dropped sharply to 0.6, indicating that quick assets covered only 60% of current liabilities, a potential liquidity concern.

Overall, the data points to a strengthening liquidity position until 2020, followed by a reversal in 2021 driven by a decrease in quick assets along with a considerable increase in current liabilities. The marked decline in the quick ratio in 2021 suggests increasing pressure on short-term financial stability, warranting attention to cash management and liability scheduling strategies.

Total Cash Assets

The total cash assets displayed an initial upward trend from 2017 to 2020, increasing from $138.5 million to $655.1 million. This represents a substantial accumulation of liquid assets over this period. However, in 2021, the total cash assets sharply declined to $147.3 million, indicating a significant reduction in cash reserves.

Current Liabilities

Current liabilities showed fluctuation with an overall increasing trajectory. Starting at $388.9 million in 2017, current liabilities rose to $560.7 million in 2018, then decreased to $497.1 million in 2019. This was followed by an increase to $641.5 million in 2020 and a further sharp increase to $1.16 billion in 2021. The sharp rise in 2021 suggests a considerable growth in short-term obligations.

Cash Ratio

The cash ratio, which measures the company's ability to cover current liabilities with cash and cash equivalents, corresponded to the observed trends in cash and liabilities. It improved steadily from 0.36 in 2017 to 1.02 in 2020, indicating increasing liquidity strength. However, in 2021, the ratio plummeted to 0.13, reflecting a disproportionately high increase in current liabilities relative to cash assets, thus signaling potential liquidity stress.