Norfolk Southern Corp. (NYSE:NSC)

The analysis of liquidity ratios over the examined periods reveals several notable trends in the company's short-term financial health and ability to cover its immediate obligations.

Current Ratio

The current ratio shows considerable fluctuations, starting at 1.04 in the first quarter of 2018 and declining to a low of 0.67 by the first quarter of 2019. This decrease signals a reduction in the company's current asset coverage relative to its current liabilities. Subsequently, the ratio experiences a partial recovery, peaking at 1.29 in the third quarter of 2020, suggesting improved liquidity during that period. However, after this peak, there is a gradual decline again, ending at 0.96 in the first quarter of 2022, which remains below 1.0 for several quarters, indicating a state where current liabilities potentially exceed current assets.

Quick Ratio

This more stringent measure of liquidity, which excludes inventory, generally follows a similar pattern. Initially at 0.86, it falls sharply to 0.51 by the first quarter of 2019, highlighting tighter liquidity conditions with less readily liquid assets available. A significant improvement is evident by the third quarter of 2020 when the ratio reaches 1.12, potentially indicating successful liquidity management and enhanced ability to meet short-term liabilities. The ratio then decreases moderately and ends at 0.84 in the first quarter of 2022, which still indicates suboptimal liquidity but better than some earlier periods.

Cash Ratio

The cash ratio, representing the company's most liquid assets, displays the greatest volatility. Starting from 0.45 in the first quarter of 2018, it drops sharply to around 0.11 by mid-2019, indicating a low level of cash and cash equivalents relative to current liabilities. Subsequently, it rises noticeably, peaking at 0.68 in the third quarter of 2020, underscoring a significant increase in liquidity reserves. However, the ratio declines again afterward and settles at 0.50 by the first quarter of 2022, a level that indicates half of the current liabilities could be covered by cash and cash equivalents alone.

Overall, the data suggests that the company experienced liquidity challenges early in the analyzed period, with ratios generally below 1.0, pointing to potential short-term liquidity constraints. Midway through 2020, liquidity positions improved markedly across all three ratios, suggesting strategic improvements in managing current assets and liabilities. Although there was some easing afterward, liquidity remained under moderate control, with the ratios generally approaching but not consistently exceeding the ideal threshold of 1.0. The patterns observed emphasize an ongoing focus on maintaining and improving short-term financial strength amidst fluctuating operating conditions.

Current Assets

Current assets exhibited fluctuations over the observed period. Initial values started at 2,479 million US dollars at the end of Q1 2018, followed by a noticeable decline reaching a low of 1,862 million by Q4 2018. Throughout 2019, current assets generally stabilized around the 2,000 million mark with modest increases and decreases. In 2020, a marked recovery occurred with a peak of 2,579 million in Q3 before receding somewhat by year-end. The early quarters of 2021 showed continued variability, with a notable peak of 3,012 million in Q2 2021 before declining again towards Q1 2022 where current assets rose sharply to 3,015 million, indicating an overall increasing trend in current assets from mid-2020 onwards.

Current Liabilities

Current liabilities also demonstrated considerable variation throughout the timeframe. Starting at 2,388 million US dollars at the close of Q1 2018, liabilities generally rose through 2018 and early 2019, reaching as high as 2,885 million in Q1 2019. Subsequently, there was a decline mid-2019 and into 2020, with the lowest point at 1,935 million in Q2 2020. From late 2020 through 2021, liabilities fluctuated between approximately 2,100 million and 2,800 million with a slight upward trend in late 2021. By Q1 2022, current liabilities increased sharply to 3,147 million, representing the highest level in the reviewed period.

Current Ratio

The current ratio reflects liquidity changes over time. It began slightly above 1.0 (1.04) in Q1 2018, then declined steadily to a low of 0.67 by Q1 2019, indicating potential short-term liquidity constraints during that period. The ratio recovered gradually throughout the rest of 2019, reaching 0.90 by year-end. There was a significant improvement in 2020 with a peak current ratio of 1.29 in Q3, which suggests improved liquidity. This was followed by a slight decline and stabilization near 1.0 during 2021. However, liquidity weakened again in early 2022 with the current ratio dropping to 0.96, below the ideal benchmark of 1.0, which could indicate tighter short-term financial conditions.

Summary of Trends and Insights

The data reveals a cyclical pattern in both current assets and liabilities, with notable dips around late 2018 and recoveries in 2020 and 2021. The fluctuating current ratio suggests variable short-term liquidity management, with periods of potential stress around early 2019 and early 2022. Overall, the increasing level of current assets in 2021 and early 2022 contrasts with the concurrent rise in liabilities, implying an intensifying leverage or working capital requirement. The decline in current ratio below 1.0 in early 2022 warrants attention, as it may reflect increased short-term obligations or reduced asset liquidity.

Overview of Quick Assets and Current Liabilities

The total quick assets exhibited fluctuations over the analyzed periods. Initially, quick assets started at a high level, peaking at 2045 million USD in March 2018, then experienced a general decline through 2018 and early 2019. Thereafter, a moderate recovery occurred with values rising again, reaching about 2611 million USD in June 2021 before declining somewhat by March 2022 to 2641 million USD. This shows a pattern of variability with no sustained upward or downward trend but with notable peaks and troughs.

In contrast, current liabilities showed a generally increasing trend over the entire analysis period. Starting from 2388 million USD in March 2018, liabilities rose irregularly but progressively, reaching a high of 3147 million USD by March 2022. Despite some intermittent decreases, the overall pattern suggests growing short-term obligations.

Quick Ratio Trends

The quick ratio, which measures liquidity by comparing quick assets to current liabilities, remained below 1.0 for the majority of the timeframe, indicating potential short-term liquidity constraints. It started at 0.86 in March 2018, declined to a low of 0.51 by March 2019, reflecting a deteriorating liquidity position.

From mid-2020, a marked improvement occurred, with the ratio surpassing 1.0 in June and September 2020 (1.02 and 1.12 respectively), suggesting a temporary strengthening of liquidity. However, this was not sustained as the ratio again dropped below 1.0 in subsequent periods, ending at 0.84 in March 2022.

Interpretation of Financial Health

The fluctuations in quick assets alongside a consistent increase in current liabilities highlight increased short-term financial obligations not always matched by immediately liquid assets. The periods where the quick ratio exceeds 1 indicate moments of enhanced liquidity, but the inability to maintain this level raises concerns about consistent short-term solvency.

The general pattern suggests the company may face challenges managing liquidity in certain quarters, requiring monitoring and potentially more effective working capital management to ensure obligations can be met without financial strain.

Total Cash Assets

Over the observed period, total cash assets demonstrated notable volatility. Initially, cash assets fluctuated within the range of approximately $274 million to $1,072 million from early 2018 through the end of 2019, showing no clear trend and frequent ups and downs each quarter. Beginning in 2020, there was a significant increase in cash balances, peaking at around $1,359 million in the third quarter of 2020. This elevated level of cash was sustained through most of 2021, with minor fluctuations, including a peak of $1,670 million in the first quarter of 2021. However, towards the end of 2021 and into early 2022, cash assets declined somewhat, settling at approximately $1,571 million by March 2022. This pattern suggests an accumulation of liquidity beginning in early 2020, possibly as a strategic response to market conditions or operational changes, followed by some normalization.

Current Liabilities

Current liabilities displayed a generally stable but slightly increasing trend across the examined quarters. Starting around $2,388 million in the first quarter of 2018, liabilities fluctuated moderately but remained consistently above $2,300 million through 2019. In 2020 and 2021, the liabilities showed periods of decline and increase, with a noticeable dip to approximately $1,935 million in the second quarter of 2020—the lowest point within the dataset—suggesting possible short-term liability management during this period. However, by early 2022, current liabilities rose to $3,147 million, marking the highest observed figure and indicating an increasing obligation burden or other operational financing needs.

Cash Ratio

The cash ratio mirrored the fluctuations seen in cash assets and current liabilities, serving as a liquidity measure. Initially, the ratio was moderate at 0.45 in early 2018 but dropped to a low of 0.11 by mid-2019, reflecting relatively lower liquidity versus current liabilities. A sharp increase began in 2020, with the ratio peaking at 0.68 in the third quarter of 2020, indicating a strengthened liquidity position during that time. This elevated liquidity was maintained into 2021, with ratios generally remaining above 0.4. A subsequent decline occurred towards the end of 2021 and early 2022, with the ratio reducing to around 0.5 in the first quarter of 2022. Overall, the cash ratio trends are consistent with a strategic buildup of liquid assets starting in 2020, followed by some reduction but still maintaining stronger liquidity relative to the earlier years.