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)
General Dynamics Corp., solvency ratios
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The solvency profile exhibits a distinct shift in capital structure beginning in 2018, moving from a period of stability and low leverage to a more aggressively leveraged position. While the company maintained conservative debt levels between 2015 and 2017, a significant increase in borrowing or a reduction in equity occurred in 2018, which persisted into 2019 despite a slight correction in debt ratios.
- Leverage Ratios
- Debt to equity, debt to capital, and debt to assets all remained relatively flat from 2015 through 2017. However, a sharp inflection point is observed in 2018, where the debt to equity ratio increased from 0.35 to 1.06, and the debt to assets ratio rose from 0.11 to 0.27. By 2019, these ratios moderated slightly, with debt to equity settling at 0.88 and debt to assets at 0.24, indicating a permanent upward shift in the company's reliance on debt financing compared to the 2015-2017 baseline.
- Financial Leverage and Asset Utilization
- Financial leverage remained stable near 3.00 during the first three years of the period. A peak was reached in 2018 at 3.87, followed by a decrease to 3.60 in 2019. This pattern mirrors the trends seen in the debt-to-asset ratios, confirming an increase in the proportion of assets financed through liabilities.
- Coverage Ratios
- A significant deterioration in the ability to service debt is evident. The interest coverage ratio declined precipitously from a high of 43.74 in 2016 to 11.92 in 2018, and further to 9.90 in 2019. Similarly, the fixed charge coverage ratio fell from 11.77 in 2015 to 6.23 by 2019. This suggests that while the company remains solvent, the margin of safety for meeting fixed financial obligations has narrowed considerably over the five-year period.
- Operating Lease Impact
- The inclusion of operating lease liabilities shows a negligible impact on solvency ratios from 2015 to 2017. However, starting in 2018 and 2019, the gap between standard debt ratios and those including lease liabilities widened slightly, particularly in the debt to assets and debt to equity metrics, suggesting an increased utilization of leased assets toward the end of the period.
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Debt Ratios
Coverage Ratios
Debt to Equity
General Dynamics Corp., debt to equity calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt and current portion of long-term debt | 2,920) | 973) | 2) | 900) | 501) | |
| Long-term debt, excluding current portion | 9,010) | 11,444) | 3,980) | 2,988) | 2,898) | |
| Total debt | 11,930) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Shareholders’ equity | 13,577) | 11,732) | 11,435) | 10,976) | 10,738) | |
| Solvency Ratio | ||||||
| Debt to equity1 | 0.88 | 1.06 | 0.35 | 0.35 | 0.32 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Debt to equity = Total debt ÷ Shareholders’ equity
= 11,930 ÷ 13,577 = 0.88
2 Click competitor name to see calculations.
Between 2015 and 2019, the solvency profile shifted from a low-leverage position to a more aggressive debt structure, characterized by a substantial increase in total debt during the 2018 fiscal year.
- Total Debt Trends
- Total debt remained relatively stable between 2015 and 2017, fluctuating within a narrow range from 3,399 million to 3,982 million US dollars. A significant escalation occurred in 2018, where debt rose to 12,417 million US dollars, representing a more than threefold increase. This peak was followed by a marginal reduction in 2019, with the balance closing at 11,930 million US dollars.
- Shareholders' Equity Growth
- Shareholders' equity demonstrated consistent annual growth throughout the five-year period. Starting at 10,738 million US dollars in 2015, the equity base grew steadily to reach 13,577 million US dollars by the end of 2019, indicating a continuous accumulation of value within the equity accounts.
- Debt to Equity Ratio Analysis
- The debt to equity ratio reflects the underlying shift in capital structure. From 2015 to 2017, the ratio remained low and stable, ranging between 0.32 and 0.35. The surge in total debt in 2018 caused the ratio to spike to 1.06, indicating a point where total debt exceeded shareholders' equity. By 2019, the ratio moderated to 0.88, a result of both the slight decrease in total debt and the continued increase in shareholders' equity.
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Debt to Equity (including Operating Lease Liability)
General Dynamics Corp., debt to equity (including operating lease liability) calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt and current portion of long-term debt | 2,920) | 973) | 2) | 900) | 501) | |
| Long-term debt, excluding current portion | 9,010) | 11,444) | 3,980) | 2,988) | 2,898) | |
| Total debt | 11,930) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Current operating lease liabilities | 252) | —) | —) | —) | —) | |
| Noncurrent operating lease liabilities | 1,251) | —) | —) | —) | —) | |
| Total debt (including operating lease liability) | 13,433) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Shareholders’ equity | 13,577) | 11,732) | 11,435) | 10,976) | 10,738) | |
| Solvency Ratio | ||||||
| Debt to equity (including operating lease liability)1 | 0.99 | 1.06 | 0.35 | 0.35 | 0.32 | |
| Benchmarks | ||||||
| Debt to Equity (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Debt to equity (including operating lease liability) = Total debt (including operating lease liability) ÷ Shareholders’ equity
= 13,433 ÷ 13,577 = 0.99
2 Click competitor name to see calculations.
Between 2015 and 2019, the solvency profile shifted from a conservative leverage position to a more leveraged capital structure. While shareholders' equity maintained a consistent upward trajectory throughout the period, total debt experienced a substantial increase in 2018, which fundamentally altered the debt-to-equity relationship.
- Total Debt Trajectory
- From 2015 to 2017, total debt, including operating lease liabilities, remained relatively stable, moving from US$ 3,399 million to US$ 3,982 million. A significant inflection point occurred in 2018, when total debt surged to US$ 12,417 million, an increase of approximately 211% over the prior year. This upward trend persisted into 2019, with debt reaching US$ 13,433 million.
- Shareholders' Equity Progression
- Shareholders' equity exhibited steady growth over the five-year period. Starting at US$ 10,738 million in 2015, equity increased incrementally each year, reaching US$ 13,577 million by the end of 2019. This represents a total growth of approximately 26% in the equity base.
- Debt to Equity Ratio Analysis
- The debt to equity ratio was characterized by stability between 2015 and 2017, maintaining a range between 0.32 and 0.35. The sharp expansion of debt in 2018 caused the ratio to spike to 1.06, indicating a shift where total liabilities exceeded shareholders' equity. In 2019, the ratio moderated slightly to 0.99, as the growth in equity began to offset the continued increase in total debt.
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Debt to Capital
General Dynamics Corp., debt to capital calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt and current portion of long-term debt | 2,920) | 973) | 2) | 900) | 501) | |
| Long-term debt, excluding current portion | 9,010) | 11,444) | 3,980) | 2,988) | 2,898) | |
| Total debt | 11,930) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Shareholders’ equity | 13,577) | 11,732) | 11,435) | 10,976) | 10,738) | |
| Total capital | 25,507) | 24,149) | 15,417) | 14,864) | 14,137) | |
| Solvency Ratio | ||||||
| Debt to capital1 | 0.47 | 0.51 | 0.26 | 0.26 | 0.24 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Debt to capital = Total debt ÷ Total capital
= 11,930 ÷ 25,507 = 0.47
2 Click competitor name to see calculations.
The financial position of General Dynamics Corp. between 2015 and 2019 is characterized by a period of stability followed by a significant increase in leverage starting in 2018. The overall trajectory indicates a substantial shift in the capital structure, resulting in a higher proportion of debt relative to total capital by the end of the five-year period.
- Total Debt Trends
- Total debt exhibited modest growth from 2015 to 2017, rising from US$ 3,399 million to US$ 3,982 million. A significant escalation occurred in 2018, where debt increased to US$ 12,417 million. This peak was followed by a slight reduction in 2019, with total debt ending at US$ 11,930 million.
- Total Capitalization
- Total capital demonstrated a consistent upward trend throughout the analyzed timeframe. Growth was gradual between 2015 and 2017, moving from US$ 14,137 million to US$ 15,417 million, before jumping to US$ 24,149 million in 2018 and reaching US$ 25,507 million by December 31, 2019.
- Debt to Capital Ratio Analysis
- The debt to capital ratio remained stable at 0.24 in 2015 and 0.26 in 2016 and 2017, indicating a conservative leverage profile. A sharp increase is observed in 2018, where the ratio rose to 0.51, reflecting the impact of the surge in total debt. A slight moderation occurred in 2019, with the ratio decreasing to 0.47, suggesting a marginal reduction in the company's relative dependence on debt financing.
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Debt to Capital (including Operating Lease Liability)
General Dynamics Corp., debt to capital (including operating lease liability) calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt and current portion of long-term debt | 2,920) | 973) | 2) | 900) | 501) | |
| Long-term debt, excluding current portion | 9,010) | 11,444) | 3,980) | 2,988) | 2,898) | |
| Total debt | 11,930) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Current operating lease liabilities | 252) | —) | —) | —) | —) | |
| Noncurrent operating lease liabilities | 1,251) | —) | —) | —) | —) | |
| Total debt (including operating lease liability) | 13,433) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Shareholders’ equity | 13,577) | 11,732) | 11,435) | 10,976) | 10,738) | |
| Total capital (including operating lease liability) | 27,010) | 24,149) | 15,417) | 14,864) | 14,137) | |
| Solvency Ratio | ||||||
| Debt to capital (including operating lease liability)1 | 0.50 | 0.51 | 0.26 | 0.26 | 0.24 | |
| Benchmarks | ||||||
| Debt to Capital (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Debt to capital (including operating lease liability) = Total debt (including operating lease liability) ÷ Total capital (including operating lease liability)
= 13,433 ÷ 27,010 = 0.50
2 Click competitor name to see calculations.
An analysis of the solvency profile from 2015 to 2019 reveals a period of relative stability followed by a significant shift in the capital structure beginning in 2018. The company transitioned from a low-leverage position to a more debt-intensive financing strategy, which is reflected in both the absolute debt levels and the corresponding solvency ratios.
- Total Debt Trends
- Total debt, including operating lease liabilities, remained relatively stable between 2015 and 2017, moving from 3,399 million US$ to 3,982 million US$. However, a substantial increase occurred in 2018, where debt rose to 12,417 million US$, representing a growth of approximately 211% in a single year. This upward trajectory continued into 2019, reaching 13,433 million US$.
- Total Capital Expansion
- Total capital followed a similar trajectory, showing modest growth from 14,137 million US$ in 2015 to 15,417 million US$ in 2017. Parallel to the increase in debt, total capital expanded sharply in 2018 to 24,149 million US$ and further increased to 27,010 million US$ by the end of 2019.
- Debt to Capital Ratio Analysis
- The debt to capital ratio remained consistent at approximately 0.24 to 0.26 between 2015 and 2017, indicating a conservative approach to leverage. A sharp inflection point is observed in 2018, where the ratio nearly doubled to 0.51. This suggests that the increase in total capital during this period was primarily driven by the acquisition of new debt rather than equity growth. The ratio remained stable at 0.50 in 2019, indicating that the new capital structure has been maintained.
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Debt to Assets
General Dynamics Corp., debt to assets calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt and current portion of long-term debt | 2,920) | 973) | 2) | 900) | 501) | |
| Long-term debt, excluding current portion | 9,010) | 11,444) | 3,980) | 2,988) | 2,898) | |
| Total debt | 11,930) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Total assets | 48,841) | 45,408) | 35,046) | 32,872) | 31,997) | |
| Solvency Ratio | ||||||
| Debt to assets1 | 0.24 | 0.27 | 0.11 | 0.12 | 0.11 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Debt to assets = Total debt ÷ Total assets
= 11,930 ÷ 48,841 = 0.24
2 Click competitor name to see calculations.
The solvency profile of the company experienced a significant shift in leverage between 2017 and 2018, moving from a period of relative stability to a higher debt-financed structure, followed by a slight moderation in 2019.
- Total Debt Evolution
- Total debt remained stable from 2015 to 2017, moving from US$ 3,399 million to US$ 3,982 million. A substantial increase occurred in 2018, where debt peaked at US$ 12,417 million, representing a more than threefold increase over the previous year. This was followed by a slight reduction to US$ 11,930 million by the end of 2019.
- Asset Growth Patterns
- Total assets exhibited a consistent upward trend throughout the five-year period, increasing from US$ 31,997 million in 2015 to US$ 48,841 million in 2019. A notable surge in the asset base was observed in 2018, rising to US$ 45,408 million, which aligns with the period of increased borrowing.
- Debt to Assets Ratio Analysis
- The debt to assets ratio was maintained at a low and consistent level between 0.11 and 0.12 from 2015 to 2017. In 2018, the ratio increased sharply to 0.27, indicating a marked increase in financial leverage. By December 31, 2019, the ratio improved to 0.24, resulting from a combination of marginally lower total debt and continued growth in total assets.
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Debt to Assets (including Operating Lease Liability)
General Dynamics Corp., debt to assets (including operating lease liability) calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt and current portion of long-term debt | 2,920) | 973) | 2) | 900) | 501) | |
| Long-term debt, excluding current portion | 9,010) | 11,444) | 3,980) | 2,988) | 2,898) | |
| Total debt | 11,930) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Current operating lease liabilities | 252) | —) | —) | —) | —) | |
| Noncurrent operating lease liabilities | 1,251) | —) | —) | —) | —) | |
| Total debt (including operating lease liability) | 13,433) | 12,417) | 3,982) | 3,888) | 3,399) | |
| Total assets | 48,841) | 45,408) | 35,046) | 32,872) | 31,997) | |
| Solvency Ratio | ||||||
| Debt to assets (including operating lease liability)1 | 0.28 | 0.27 | 0.11 | 0.12 | 0.11 | |
| Benchmarks | ||||||
| Debt to Assets (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Debt to assets (including operating lease liability) = Total debt (including operating lease liability) ÷ Total assets
= 13,433 ÷ 48,841 = 0.28
2 Click competitor name to see calculations.
The company's solvency profile experienced a significant shift between 2015 and 2019, transitioning from a low-leverage position to a moderately leveraged one. While total assets grew consistently throughout the period, the growth in total debt, including operating lease liabilities, accelerated sharply beginning in 2018.
- Total Debt Trends
- Between 2015 and 2017, total debt remained relatively stable, moving from US$ 3,399 million to US$ 3,982 million. A substantial increase occurred in 2018, with debt rising to US$ 12,417 million, representing more than a threefold increase within a single fiscal year. This expansion continued into 2019, where debt reached US$ 13,433 million.
- Total Asset Growth
- Total assets showed a consistent upward trajectory, increasing from US$ 31,997 million in 2015 to US$ 48,841 million in 2019. A significant jump in asset value was recorded between 2017 and 2018, coinciding with the period of increased borrowing.
- Debt to Assets Ratio Analysis
- The debt to assets ratio was maintained at a stable range of 0.11 to 0.12 from 2015 to 2017. However, the ratio increased sharply to 0.27 in 2018 and further to 0.28 in 2019. This pattern indicates that the growth in liabilities significantly outpaced the growth in assets during the 2018-2019 period, resulting in a higher proportion of assets being financed through debt.
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Financial Leverage
General Dynamics Corp., financial leverage calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Total assets | 48,841) | 45,408) | 35,046) | 32,872) | 31,997) | |
| Shareholders’ equity | 13,577) | 11,732) | 11,435) | 10,976) | 10,738) | |
| Solvency Ratio | ||||||
| Financial leverage1 | 3.60 | 3.87 | 3.06 | 2.99 | 2.98 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Financial leverage = Total assets ÷ Shareholders’ equity
= 48,841 ÷ 13,577 = 3.60
2 Click competitor name to see calculations.
An evaluation of the balance sheet from 2015 to 2019 reveals a consistent expansion of the total asset base, which grew from US$ 31,997 million to US$ 48,841 million. This growth was characterized by a sharp acceleration between 2017 and 2018, during which total assets increased by approximately 29.5%. Shareholders' equity also followed a steady upward trajectory, rising from US$ 10,738 million to US$ 13,577 million over the five-year period.
- Financial Leverage Trends
- The financial leverage ratio remained relatively stable between 2015 and 2017, fluctuating slightly from 2.98 to 3.06. A significant increase occurred in 2018, with the ratio peaking at 3.87, indicating a heightened reliance on debt to finance asset acquisition or operations. By 2019, the leverage ratio moderated to 3.60, though it remained elevated relative to the levels observed prior to 2018.
- Capital Structure Dynamics
- A pronounced divergence between asset growth and equity growth is observed in 2018. During this fiscal year, total assets increased by more than US$ 10 billion, while shareholders' equity grew by only US$ 297 million. This disparity directly resulted in the peak leverage ratio of 3.87. In 2019, the relationship shifted as shareholders' equity experienced its largest single-year increase of US$ 1,845 million, which contributed to the subsequent reduction of the leverage ratio to 3.60.
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Interest Coverage
General Dynamics Corp., interest coverage calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net earnings | 3,484) | 3,345) | 2,912) | 2,955) | 2,965) | |
| Less: Discontinued operations, net of tax | —) | (13) | —) | (107) | —) | |
| Add: Income tax expense | 718) | 727) | 1,165) | 1,169) | 1,137) | |
| Add: Interest expense | 472) | 374) | 117) | 99) | 98) | |
| Earnings before interest and tax (EBIT) | 4,674) | 4,459) | 4,194) | 4,330) | 4,200) | |
| Solvency Ratio | ||||||
| Interest coverage1 | 9.90 | 11.92 | 35.85 | 43.74 | 42.86 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Interest coverage = EBIT ÷ Interest expense
= 4,674 ÷ 472 = 9.90
2 Click competitor name to see calculations.
The analysis of solvency indicators between 2015 and 2019 reveals a significant deterioration in interest coverage, primarily driven by a sharp rise in interest expenses despite a steady increase in operating earnings.
- Earnings Before Interest and Tax (EBIT)
- Operating performance exhibited a gradual upward trend over the five-year period. EBIT grew from 4,200 million USD in 2015 to 4,674 million USD in 2019, demonstrating a consistent ability to generate earnings from core operations.
- Interest Expense
- A substantial escalation in financing costs is observed. Interest expenses remained relatively stable between 2015 and 2016 but experienced an accelerated increase starting in 2017, reaching 472 million USD by 2019. The most pronounced increase occurred between 2017 and 2018, during which interest costs more than tripled.
- Interest Coverage Ratio
- The interest coverage ratio followed a steep downward trajectory, falling from a peak of 43.74 in 2016 to 9.90 by the end of 2019. This contraction indicates a reduced margin of safety for meeting interest obligations. While the ratio remains comfortably above the threshold of insolvency, the rapid decline suggests a significant increase in the company's debt burden or higher borrowing costs relative to its operating income.
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Fixed Charge Coverage
General Dynamics Corp., fixed charge coverage calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net earnings | 3,484) | 3,345) | 2,912) | 2,955) | 2,965) | |
| Less: Discontinued operations, net of tax | —) | (13) | —) | (107) | —) | |
| Add: Income tax expense | 718) | 727) | 1,165) | 1,169) | 1,137) | |
| Add: Interest expense | 472) | 374) | 117) | 99) | 98) | |
| Earnings before interest and tax (EBIT) | 4,674) | 4,459) | 4,194) | 4,330) | 4,200) | |
| Add: Operating lease cost | 332) | 380) | 309) | 307) | 283) | |
| Earnings before fixed charges and tax | 5,006) | 4,839) | 4,503) | 4,637) | 4,483) | |
| Interest expense | 472) | 374) | 117) | 99) | 98) | |
| Operating lease cost | 332) | 380) | 309) | 307) | 283) | |
| Fixed charges | 804) | 754) | 426) | 406) | 381) | |
| Solvency Ratio | ||||||
| Fixed charge coverage1 | 6.23 | 6.42 | 10.57 | 11.42 | 11.77 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 5,006 ÷ 804 = 6.23
2 Click competitor name to see calculations.
Between 2015 and 2019, a systematic decline in the fixed charge coverage ratio is evident, indicating a reduction in the margin of safety available to meet fixed financial obligations despite an overall increase in operational earnings.
- Earnings before fixed charges and tax
- Earnings demonstrated a consistent upward trajectory over the five-year period, increasing from US$ 4,483 million in 2015 to US$ 5,006 million by 2019. This steady growth indicates a positive trend in the capacity to generate funds prior to meeting fixed commitments.
- Fixed charges
- Fixed charges remained relatively stable from 2015 to 2017, moving from US$ 381 million to US$ 426 million. A significant inflection point occurred in 2018, when fixed charges escalated to US$ 754 million, continuing upward to US$ 804 million in 2019. This represents a substantial increase in fixed financial obligations during the latter part of the analyzed period.
- Fixed charge coverage ratio
- The coverage ratio experienced a continuous decline, falling from 11.77 in 2015 to 6.23 in 2019. The most acute contraction occurred between 2017 and 2018, where the ratio dropped from 10.57 to 6.42. While the ratio remains above 6.0, the trend reveals that the growth in fixed charges significantly outpaced the growth in earnings, thereby weakening the solvency buffer.
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