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
Illinois Tool Works Inc., solvency ratios
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The solvency profile exhibits a period of increasing leverage from 2017 through 2019, followed by a moderate deleveraging phase ending in 2021. While debt levels relative to equity rose during the mid-period, the overall capacity to service these obligations remained consistently strong throughout the analyzed timeframe.
- Leverage and Equity Ratios
- The debt to equity ratio increased from 1.82 in 2017 to a peak of 2.56 in 2019, before declining to 2.12 by 2021. This trend is closely mirrored in the financial leverage ratio, which rose from 3.66 in 2017 to 4.98 in 2019, subsequently correcting to 4.44 in 2021. The inclusion of operating lease liabilities resulted in a marginal increase in these metrics, though the fundamental trajectory remained unchanged.
- Asset and Capital Ratios
- Debt to assets remained relatively stable over the five-year period, fluctuating within a narrow range between 0.48 and 0.52. Similarly, the debt to capital ratio showed limited volatility, peaking at 0.72 in 2019 and 2020 before easing to 0.68 in 2021. These figures suggest a consistent strategic approach to maintaining the proportion of debt relative to the total asset base and total capital.
- Coverage Ratios
- Interest coverage and fixed charge coverage ratios indicate a robust ability to meet fixed financial obligations. The interest coverage ratio grew from 13.58 in 2017 to a high of 17.47 in 2021, despite a brief contraction to 14.13 in 2020. Fixed charge coverage followed a similar pattern, beginning at 9.61 in 2017 and reaching 11.39 by 2021, underscoring strong operational earnings relative to debt service requirements.
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Debt to Equity
Illinois Tool Works Inc., debt to equity calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 778) | 350) | 4) | 1,351) | 850) | |
| Long-term debt | 6,909) | 7,772) | 7,754) | 6,029) | 7,478) | |
| Total debt | 7,687) | 8,122) | 7,758) | 7,380) | 8,328) | |
| Stockholders’ equity attributable to ITW | 3,625) | 3,181) | 3,026) | 3,254) | 4,585) | |
| Solvency Ratio | ||||||
| Debt to equity1 | 2.12 | 2.55 | 2.56 | 2.27 | 1.82 | |
| Benchmarks | ||||||
| Debt to Equity, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 2.29 | — | — | — | — | |
| Eaton Corp. plc | 0.52 | — | — | — | — | |
| GE Aerospace | 0.87 | — | — | — | — | |
| Honeywell International Inc. | 1.06 | — | — | — | — | |
| Lockheed Martin Corp. | 1.07 | — | — | — | — | |
| RTX Corp. | 0.43 | — | — | — | — | |
| Debt to Equity, Sector | ||||||
| Capital Goods | 1.26 | — | — | — | — | |
| Debt to Equity, Industry | ||||||
| Industrials | 1.37 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Debt to equity = Total debt ÷ Stockholders’ equity attributable to ITW
= 7,687 ÷ 3,625 = 2.12
2 Click competitor name to see calculations.
The solvency analysis for the period between 2017 and 2021 reveals a period of increasing financial leverage that peaked in 2019, followed by a gradual improvement in the company's capital structure by the end of 2021.
- Debt to Equity Ratio Trend
- The debt to equity ratio exhibited a clear upward trend in the early part of the observed period, rising from 1.82 in 2017 to a peak of 2.56 in 2019. This indicates a higher reliance on debt financing relative to shareholder equity during this timeframe. The ratio remained nearly stagnant in 2020 at 2.55 before declining to 2.12 by December 31, 2021, signaling a reduction in financial leverage.
- Total Debt Fluctuations
- Total debt levels fluctuated throughout the five-year span. After an initial decrease from 8,328 million USD in 2017 to 7,380 million USD in 2018, debt increased steadily over the next two years, reaching 8,122 million USD in 2020. A subsequent reduction brought the total debt to 7,687 million USD by the end of 2021.
- Equity Base Analysis
- Stockholders' equity attributable to the company experienced a significant contraction between 2017 and 2019, falling from 4,585 million USD to 3,026 million USD. This decline in equity served as the primary catalyst for the increase in the debt to equity ratio. Starting in 2020, a recovery trend emerged, with equity increasing to 3,181 million USD in 2020 and further rising to 3,625 million USD in 2021.
In summary, the increase in the solvency ratio through 2019 was driven more by the reduction of the equity base than by a substantial increase in total debt. The improvement observed in 2021 resulted from a dual effect of decreasing total debt and increasing stockholders' equity.
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Debt to Equity (including Operating Lease Liability)
Illinois Tool Works Inc., debt to equity (including operating lease liability) calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 778) | 350) | 4) | 1,351) | 850) | |
| Long-term debt | 6,909) | 7,772) | 7,754) | 6,029) | 7,478) | |
| Total debt | 7,687) | 8,122) | 7,758) | 7,380) | 8,328) | |
| Current portion of operating lease liabilities | 61) | 55) | 51) | —) | —) | |
| Long-term portion of operating lease liabilities | 133) | 133) | 128) | —) | —) | |
| Total debt (including operating lease liability) | 7,881) | 8,310) | 7,937) | 7,380) | 8,328) | |
| Stockholders’ equity attributable to ITW | 3,625) | 3,181) | 3,026) | 3,254) | 4,585) | |
| Solvency Ratio | ||||||
| Debt to equity (including operating lease liability)1 | 2.17 | 2.61 | 2.62 | 2.27 | 1.82 | |
| Benchmarks | ||||||
| Debt to Equity (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 2.33 | — | — | — | — | |
| Eaton Corp. plc | 0.55 | — | — | — | — | |
| GE Aerospace | 0.94 | — | — | — | — | |
| Honeywell International Inc. | 1.11 | — | — | — | — | |
| Lockheed Martin Corp. | 1.19 | — | — | — | — | |
| RTX Corp. | 0.46 | — | — | — | — | |
| Debt to Equity (including Operating Lease Liability), Sector | ||||||
| Capital Goods | 1.32 | — | — | — | — | |
| Debt to Equity (including Operating Lease Liability), Industry | ||||||
| Industrials | 1.54 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Debt to equity (including operating lease liability) = Total debt (including operating lease liability) ÷ Stockholders’ equity attributable to ITW
= 7,881 ÷ 3,625 = 2.17
2 Click competitor name to see calculations.
The solvency profile of the company exhibited a period of increasing leverage between 2017 and 2019, followed by a trend toward deleveraging and equity recovery through 2021. While total debt obligations remained relatively stable throughout the five-year period, the volatility in stockholders' equity served as the primary driver for the fluctuations in the debt-to-equity ratio.
- Debt to Equity Ratio
- A significant upward trend in the debt-to-equity ratio is observed from 2017 to 2019, rising from 1.82 to a peak of 2.62. The ratio remained nearly stagnant in 2020 at 2.61 before declining to 2.17 by the end of 2021. This indicates a period of heightened financial leverage followed by a subsequent improvement in the capital structure.
- Total Debt Analysis
- Total debt, inclusive of operating lease liabilities, fluctuated within a narrow range between 7,380 million USD and 8,328 million USD. After a decrease in 2018, debt levels rose steadily to 8,310 million USD in 2020 before decreasing to 7,881 million USD in 2021. The relative stability of these figures suggests that the changes in solvency ratios were not primarily caused by aggressive borrowing.
- Stockholders' Equity Trends
- Equity attributable to the company experienced a sharp decline from 4,585 million USD in 2017 to a low of 3,026 million USD in 2019. This reduction in the equity base was the principal cause of the rise in the debt-to-equity ratio during this period. A recovery trend emerged thereafter, with equity increasing to 3,181 million USD in 2020 and further expanding to 3,625 million USD in 2021.
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Debt to Capital
Illinois Tool Works Inc., debt to capital calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 778) | 350) | 4) | 1,351) | 850) | |
| Long-term debt | 6,909) | 7,772) | 7,754) | 6,029) | 7,478) | |
| Total debt | 7,687) | 8,122) | 7,758) | 7,380) | 8,328) | |
| Stockholders’ equity attributable to ITW | 3,625) | 3,181) | 3,026) | 3,254) | 4,585) | |
| Total capital | 11,312) | 11,303) | 10,784) | 10,634) | 12,913) | |
| Solvency Ratio | ||||||
| Debt to capital1 | 0.68 | 0.72 | 0.72 | 0.69 | 0.64 | |
| Benchmarks | ||||||
| Debt to Capital, Competitors2 | ||||||
| Boeing Co. | 1.35 | — | — | — | — | |
| Caterpillar Inc. | 0.70 | — | — | — | — | |
| Eaton Corp. plc | 0.34 | — | — | — | — | |
| GE Aerospace | 0.47 | — | — | — | — | |
| Honeywell International Inc. | 0.51 | — | — | — | — | |
| Lockheed Martin Corp. | 0.52 | — | — | — | — | |
| RTX Corp. | 0.30 | — | — | — | — | |
| Debt to Capital, Sector | ||||||
| Capital Goods | 0.56 | — | — | — | — | |
| Debt to Capital, Industry | ||||||
| Industrials | 0.58 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Debt to capital = Total debt ÷ Total capital
= 7,687 ÷ 11,312 = 0.68
2 Click competitor name to see calculations.
The company's solvency profile between 2017 and 2021 is characterized by a moderate increase in financial leverage that peaked in 2019 and 2020, followed by a corrective decline in 2021. The capital structure shows a fluctuating reliance on debt relative to total capital over the five-year period.
- Debt to Capital Ratio Trends
- The debt to capital ratio rose steadily from 0.64 in 2017 to a peak of 0.72 in 2019 and 2020. This upward trajectory indicates an increase in the proportion of debt used to fund the company's capital base during this timeframe. However, this trend reversed in 2021, as the ratio decreased to 0.68, reflecting a reduction in financial leverage.
- Total Debt Analysis
- Total debt experienced a significant decrease between 2017 and 2018, falling from 8,328 million to 7,380 million. This was followed by a three-year period of growth, with debt increasing to 8,122 million by December 31, 2020. By the end of 2021, total debt was reduced to 7,687 million, aligning with the overall decrease in the leverage ratio for that year.
- Total Capital Movements
- Total capital underwent a substantial contraction in 2018, dropping from 12,913 million in 2017 to 10,634 million. From 2019 through 2021, total capital exhibited a consistent recovery and growth trend, ending the period at 11,312 million. The increase in the debt to capital ratio between 2017 and 2019 was driven not only by debt levels but also by the significant reduction in total capital during 2018.
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Debt to Capital (including Operating Lease Liability)
Illinois Tool Works Inc., debt to capital (including operating lease liability) calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 778) | 350) | 4) | 1,351) | 850) | |
| Long-term debt | 6,909) | 7,772) | 7,754) | 6,029) | 7,478) | |
| Total debt | 7,687) | 8,122) | 7,758) | 7,380) | 8,328) | |
| Current portion of operating lease liabilities | 61) | 55) | 51) | —) | —) | |
| Long-term portion of operating lease liabilities | 133) | 133) | 128) | —) | —) | |
| Total debt (including operating lease liability) | 7,881) | 8,310) | 7,937) | 7,380) | 8,328) | |
| Stockholders’ equity attributable to ITW | 3,625) | 3,181) | 3,026) | 3,254) | 4,585) | |
| Total capital (including operating lease liability) | 11,506) | 11,491) | 10,963) | 10,634) | 12,913) | |
| Solvency Ratio | ||||||
| Debt to capital (including operating lease liability)1 | 0.68 | 0.72 | 0.72 | 0.69 | 0.64 | |
| Benchmarks | ||||||
| Debt to Capital (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | 1.34 | — | — | — | — | |
| Caterpillar Inc. | 0.70 | — | — | — | — | |
| Eaton Corp. plc | 0.36 | — | — | — | — | |
| GE Aerospace | 0.49 | — | — | — | — | |
| Honeywell International Inc. | 0.53 | — | — | — | — | |
| Lockheed Martin Corp. | 0.54 | — | — | — | — | |
| RTX Corp. | 0.31 | — | — | — | — | |
| Debt to Capital (including Operating Lease Liability), Sector | ||||||
| Capital Goods | 0.57 | — | — | — | — | |
| Debt to Capital (including Operating Lease Liability), Industry | ||||||
| Industrials | 0.61 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Debt to capital (including operating lease liability) = Total debt (including operating lease liability) ÷ Total capital (including operating lease liability)
= 7,881 ÷ 11,506 = 0.68
2 Click competitor name to see calculations.
The solvency profile reflects a shifting balance between debt and total capital from 2017 through 2021. While total debt levels remained relatively stable over the five-year period, fluctuations in total capital led to a period of increased leverage before a downward trend began in 2021.
- Total Debt Trends
- Total debt, inclusive of operating lease liabilities, experienced an initial decline from US$ 8,328 million in 2017 to US$ 7,380 million in 2018. This was followed by a three-year upward trajectory, peaking at US$ 8,310 million in 2020, before receding to US$ 7,881 million in 2021.
- Total Capital Evolution
- A significant contraction in total capital occurred between 2017 and 2018, falling from US$ 12,913 million to US$ 10,634 million. Subsequently, total capital grew steadily each year, reaching US$ 11,506 million by the end of 2021, though it remained below the 2017 baseline.
- Debt to Capital Ratio Analysis
- The debt to capital ratio exhibited a gradual increase from 0.64 in 2017 to a plateau of 0.72 in 2019 and 2020. This indicates that debt constituted a larger proportion of the capital structure during this window. A reversal occurred in 2021, with the ratio decreasing to 0.68, reflecting a reduction in total debt relative to the continued growth in total capital.
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Debt to Assets
Illinois Tool Works Inc., debt to assets calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 778) | 350) | 4) | 1,351) | 850) | |
| Long-term debt | 6,909) | 7,772) | 7,754) | 6,029) | 7,478) | |
| Total debt | 7,687) | 8,122) | 7,758) | 7,380) | 8,328) | |
| Total assets | 16,077) | 15,612) | 15,068) | 14,870) | 16,780) | |
| Solvency Ratio | ||||||
| Debt to assets1 | 0.48 | 0.52 | 0.51 | 0.50 | 0.50 | |
| Benchmarks | ||||||
| Debt to Assets, Competitors2 | ||||||
| Boeing Co. | 0.42 | — | — | — | — | |
| Caterpillar Inc. | 0.46 | — | — | — | — | |
| Eaton Corp. plc | 0.25 | — | — | — | — | |
| GE Aerospace | 0.18 | — | — | — | — | |
| Honeywell International Inc. | 0.30 | — | — | — | — | |
| Lockheed Martin Corp. | 0.23 | — | — | — | — | |
| RTX Corp. | 0.20 | — | — | — | — | |
| Debt to Assets, Sector | ||||||
| Capital Goods | 0.28 | — | — | — | — | |
| Debt to Assets, Industry | ||||||
| Industrials | 0.30 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Debt to assets = Total debt ÷ Total assets
= 7,687 ÷ 16,077 = 0.48
2 Click competitor name to see calculations.
The solvency profile between 2017 and 2021 is characterized by a stable leverage ratio with a notable improvement in the final year of the period. The proportion of assets funded by debt remained largely consistent, despite fluctuations in both the absolute debt levels and the total asset base.
- Debt to Assets Ratio
- The ratio exhibited minimal variance from 2017 to 2020, ranging between 0.50 and 0.52. This stability suggests a controlled approach to leverage during this interval. A contraction to 0.48 in 2021 indicates an increase in solvency, as the company reduced its reliance on debt relative to its total asset value.
- Total Debt Trends
- Debt obligations showed a non-linear pattern, with a decrease in 2018 to 7,380 million followed by a three-year increase peaking at 8,122 million in 2020. The subsequent reduction to 7,687 million in 2021 aligns with the overall improvement in the debt-to-assets ratio.
- Total Asset Trajectory
- Following a decrease in 2018 to 14,870 million, the asset base entered a period of steady growth, increasing for three consecutive years to reach 16,077 million by December 31, 2021. This consistent asset growth, coupled with the reduction in debt in 2021, contributed to the strengthened solvency position.
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Debt to Assets (including Operating Lease Liability)
Illinois Tool Works Inc., debt to assets (including operating lease liability) calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 778) | 350) | 4) | 1,351) | 850) | |
| Long-term debt | 6,909) | 7,772) | 7,754) | 6,029) | 7,478) | |
| Total debt | 7,687) | 8,122) | 7,758) | 7,380) | 8,328) | |
| Current portion of operating lease liabilities | 61) | 55) | 51) | —) | —) | |
| Long-term portion of operating lease liabilities | 133) | 133) | 128) | —) | —) | |
| Total debt (including operating lease liability) | 7,881) | 8,310) | 7,937) | 7,380) | 8,328) | |
| Total assets | 16,077) | 15,612) | 15,068) | 14,870) | 16,780) | |
| Solvency Ratio | ||||||
| Debt to assets (including operating lease liability)1 | 0.49 | 0.53 | 0.53 | 0.50 | 0.50 | |
| Benchmarks | ||||||
| Debt to Assets (including Operating Lease Liability), Competitors2 | ||||||
| Boeing Co. | 0.43 | — | — | — | — | |
| Caterpillar Inc. | 0.46 | — | — | — | — | |
| Eaton Corp. plc | 0.27 | — | — | — | — | |
| GE Aerospace | 0.19 | — | — | — | — | |
| Honeywell International Inc. | 0.32 | — | — | — | — | |
| Lockheed Martin Corp. | 0.26 | — | — | — | — | |
| RTX Corp. | 0.21 | — | — | — | — | |
| Debt to Assets (including Operating Lease Liability), Sector | ||||||
| Capital Goods | 0.29 | — | — | — | — | |
| Debt to Assets (including Operating Lease Liability), Industry | ||||||
| Industrials | 0.34 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Debt to assets (including operating lease liability) = Total debt (including operating lease liability) ÷ Total assets
= 7,881 ÷ 16,077 = 0.49
2 Click competitor name to see calculations.
The solvency profile between 2017 and 2021 demonstrates a stable relationship between total debt and total assets. The debt-to-assets ratio fluctuated within a narrow range, suggesting a consistent strategy regarding leverage and the financing of the asset base.
- Total Debt Trends
- Total debt, including operating lease liabilities, exhibited a non-linear trajectory. Following a decrease from US$ 8,328 million in 2017 to US$ 7,380 million in 2018, obligations increased over the next two years, peaking at US$ 8,310 million in 2020. This upward trend reversed in 2021, with debt levels declining to US$ 7,881 million.
- Total Asset Movements
- Total assets experienced a significant contraction between 2017 and 2018, falling from US$ 16,780 million to US$ 14,870 million. Following this decline, a steady growth trend was observed from 2019 through 2021, with the asset base expanding to US$ 16,077 million by the end of the period.
- Debt to Assets Ratio Analysis
- The ratio remained remarkably consistent, holding at 0.50 during 2017 and 2018. A marginal increase to 0.53 was recorded in 2019 and 2020, reflecting a period where debt growth slightly outpaced asset growth. The ratio reached its lowest point of 0.49 in 2021, driven by the concurrent reduction in total debt and the continued expansion of total assets.
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Financial Leverage
Illinois Tool Works Inc., financial leverage calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Total assets | 16,077) | 15,612) | 15,068) | 14,870) | 16,780) | |
| Stockholders’ equity attributable to ITW | 3,625) | 3,181) | 3,026) | 3,254) | 4,585) | |
| Solvency Ratio | ||||||
| Financial leverage1 | 4.44 | 4.91 | 4.98 | 4.57 | 3.66 | |
| Benchmarks | ||||||
| Financial Leverage, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 5.02 | — | — | — | — | |
| Eaton Corp. plc | 2.07 | — | — | — | — | |
| GE Aerospace | 4.93 | — | — | — | — | |
| Honeywell International Inc. | 3.47 | — | — | — | — | |
| Lockheed Martin Corp. | 4.64 | — | — | — | — | |
| RTX Corp. | 2.21 | — | — | — | — | |
| Financial Leverage, Sector | ||||||
| Capital Goods | 4.55 | — | — | — | — | |
| Financial Leverage, Industry | ||||||
| Industrials | 4.52 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Financial leverage = Total assets ÷ Stockholders’ equity attributable to ITW
= 16,077 ÷ 3,625 = 4.44
2 Click competitor name to see calculations.
Between 2017 and 2021, the financial structure exhibited a period of increased reliance on debt relative to equity, followed by a gradual trend toward deleveraging. The most significant fluctuations occurred between 2017 and 2019, where a contraction in stockholders' equity drove a sharp increase in the financial leverage ratio.
- Asset Dynamics
- Total assets experienced an initial decline in 2018, falling from US$ 16,780 million to US$ 14,870 million. Following this dip, a consistent recovery trend is observed, with assets growing steadily each year to reach US$ 16,077 million by December 31, 2021.
- Equity Trends
- Stockholders' equity attributable to the company saw a substantial reduction from US$ 4,585 million in 2017 to a low of US$ 3,026 million in 2019. From 2020 onward, equity began to recover, rising to US$ 3,625 million by the end of 2021, although it remained significantly lower than the 2017 baseline.
- Financial Leverage Evolution
- The financial leverage ratio rose from 3.66 in 2017 to a peak of 4.98 in 2019, indicating a heightened level of financial risk and a greater proportion of debt-funded assets. After 2019, the ratio entered a downward trend, decreasing to 4.91 in 2020 and further to 4.44 in 2021. This reduction suggests a strategic effort to strengthen the balance sheet and improve solvency by increasing the equity base relative to total assets.
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Interest Coverage
Illinois Tool Works Inc., interest coverage calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,694) | 2,109) | 2,521) | 2,563) | 1,687) | |
| Add: Income tax expense | 632) | 595) | 767) | 831) | 1,583) | |
| Add: Interest expense | 202) | 206) | 221) | 257) | 260) | |
| Earnings before interest and tax (EBIT) | 3,528) | 2,910) | 3,509) | 3,651) | 3,530) | |
| Solvency Ratio | ||||||
| Interest coverage1 | 17.47 | 14.13 | 15.88 | 14.21 | 13.58 | |
| Benchmarks | ||||||
| Interest Coverage, Competitors2 | ||||||
| Boeing Co. | -0.88 | — | — | — | — | |
| Caterpillar Inc. | 17.88 | — | — | — | — | |
| Eaton Corp. plc | 21.11 | — | — | — | — | |
| GE Aerospace | -0.96 | — | — | — | — | |
| Honeywell International Inc. | 22.09 | — | — | — | — | |
| Lockheed Martin Corp. | 14.27 | — | — | — | — | |
| RTX Corp. | 4.71 | — | — | — | — | |
| Interest Coverage, Sector | ||||||
| Capital Goods | 3.98 | — | — | — | — | |
| Interest Coverage, Industry | ||||||
| Industrials | 5.14 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Interest coverage = EBIT ÷ Interest expense
= 3,528 ÷ 202 = 17.47
2 Click competitor name to see calculations.
The analysis of solvency metrics between 2017 and 2021 reveals a strong and improving capacity to service debt obligations. While operating performance experienced a temporary contraction in 2020, the overall trend indicates an enhancement in the margin of safety regarding interest payments.
- Earnings before interest and tax (EBIT)
- Operating earnings remained relatively stable from 2017 to 2019, fluctuating between 3,509 and 3,651 million US$. A notable decline occurred in 2020, where EBIT dropped to 2,910 million US$, representing the lowest point in the five-year period. However, a robust recovery was observed in 2021, with earnings returning to 3,528 million US$, effectively restoring the operating income levels seen at the start of the analysis period.
- Interest expense
- A consistent downward trend in interest costs is observed throughout the period. Expenses decreased from 260 million US$ in 2017 to 202 million US$ in 2021. This steady decline suggests a reduction in the company's total debt burden or a successful refinancing of obligations at lower interest rates, which has contributed positively to the overall solvency position.
- Interest coverage ratio
- The interest coverage ratio demonstrates an upward trajectory, growing from 13.58 in 2017 to a peak of 17.47 in 2021. The ratio experienced a temporary dip to 14.13 in 2020, which was driven by the contraction in EBIT rather than an increase in interest costs. The significant increase in 2021 reflects the combined impact of recovered operating earnings and reduced interest expenses, indicating an exceptionally high capacity to cover interest obligations from operating profits.
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Fixed Charge Coverage
Illinois Tool Works Inc., fixed charge coverage calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,694) | 2,109) | 2,521) | 2,563) | 1,687) | |
| Add: Income tax expense | 632) | 595) | 767) | 831) | 1,583) | |
| Add: Interest expense | 202) | 206) | 221) | 257) | 260) | |
| Earnings before interest and tax (EBIT) | 3,528) | 2,910) | 3,509) | 3,651) | 3,530) | |
| Add: Rental expense for operating leases | 118) | 113) | 113) | 124) | 120) | |
| Earnings before fixed charges and tax | 3,646) | 3,023) | 3,622) | 3,775) | 3,650) | |
| Interest expense | 202) | 206) | 221) | 257) | 260) | |
| Rental expense for operating leases | 118) | 113) | 113) | 124) | 120) | |
| Fixed charges | 320) | 319) | 334) | 381) | 380) | |
| Solvency Ratio | ||||||
| Fixed charge coverage1 | 11.39 | 9.48 | 10.84 | 9.91 | 9.61 | |
| Benchmarks | ||||||
| Fixed Charge Coverage, Competitors2 | ||||||
| Boeing Co. | -0.64 | — | — | — | — | |
| Caterpillar Inc. | 12.73 | — | — | — | — | |
| Eaton Corp. plc | 10.40 | — | — | — | — | |
| GE Aerospace | -0.22 | — | — | — | — | |
| Honeywell International Inc. | 13.67 | — | — | — | — | |
| Lockheed Martin Corp. | 9.95 | — | — | — | — | |
| RTX Corp. | 3.66 | — | — | — | — | |
| Fixed Charge Coverage, Sector | ||||||
| Capital Goods | 3.06 | — | — | — | — | |
| Fixed Charge Coverage, Industry | ||||||
| Industrials | 3.44 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 3,646 ÷ 320 = 11.39
2 Click competitor name to see calculations.
The solvency profile of the company demonstrates a consistently strong capacity to meet its fixed obligations over the five-year period ending December 31, 2021. The ability to cover fixed charges remained high, indicating a low risk of default and significant financial flexibility.
- Earnings Before Fixed Charges and Tax
- Earnings exhibited volatility over the observed period, reaching a peak of 3,775 million in 2018 before experiencing a notable contraction in 2020, where values fell to 3,023 million. A substantial recovery occurred in 2021, with earnings returning to 3,646 million, nearly matching the levels seen in 2017.
- Fixed Charges
- A general downward trend in fixed charges is evident, decreasing from 380 million in 2017 to 320 million in 2021. This reduction in fixed obligations served as a critical stabilizer, mitigating the impact of earnings volatility on the overall solvency position.
- Fixed Charge Coverage Ratio
- The coverage ratio remained robust, fluctuating between a minimum of 9.48 in 2020 and a maximum of 11.39 in 2021. The ratio saw an increase in 2019 driven by lower fixed charges and reached its highest point in 2021 as earnings recovered while fixed obligations remained at a reduced level relative to the start of the period.
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